Stress just begun as record debt wall looms

HONG KONG: Emerging-market companies and governments straining to deal with the rising cost of borrowing in dollars face increasing pressure as a record slew of bonds come due.

Some US$249bil needs to be repaid or refinanced through next year, according to data compiled by Bloomberg.

That’s a legacy of a decade-long debt binge during which emerging markets more than doubled their borrowing in dollars, ignoring the many lessons of history from the 1980s Latin American debt crisis, the 1990s Asian financial crisis and the 2000s Argentine default.

Even since the 2013 taper tantrum, the group’s dollar debt has climbed in excess of US$1 trillion – more than the combined size of the Mexican and Thai economies, Institute of International Finance data show.

Even those that have been effective in building local-currency debt markets aren’t invulnerable from the Federal Reserve-led rollback in global liquidity.

That’s because of the significant presence of overseas investors sensitive to shifts in advanced economies.

“We look to be in for a pretty rough patch near term,” says Sonja Gibbs, senior director for capital markets in Washington at the IIF, an association of the world’s biggest banks.

“The sharper the rise in the dollar and rates, the greater the near-term contagion risk.” Rising US rates would have a knock-on effect even in local debt markets, she said.