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Leverage and currency mismatches: Non‐financial companies in the emerging markets

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  • Michael Chui
  • Emese Kuruc
  • Philip Turner

Abstract

Growing currency mismatches in the emerging market economies (EMEs) since 2010 have been driven by non‐financial companies. Their financing conditions were greatly eased by lower policy rates and a huge expansion in central bank balance sheets in major advanced economies. This has allowed these companies to increase their gearing, notably by greater foreign currency borrowing, thereby greatly increased the risk of currency mismatches. Microeconomic data show that it was not only companies providing tradable goods and services but also those producing non‐tradable goods which have increased their foreign currency borrowing. The across‐the‐board decline in EME companies’ profitability from mid‐2010 to mid‐2015 brought to light significant vulnerabilities and appeared to have constrained business fixed investment, and therefore growth, in the near term. But the strong external asset positions of the official sector in most EMEs will help the authorities cope with these challenges.

Suggested Citation

  • Michael Chui & Emese Kuruc & Philip Turner, 2018. "Leverage and currency mismatches: Non‐financial companies in the emerging markets," The World Economy, Wiley Blackwell, vol. 41(12), pages 3269-3287, December.
    • Handle: RePEc:bla:worlde:v:41:y:2018:i:12:p:3269-3287
    DOI: 10.1111/twec.12627
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    Cited by:

    1. Kohler, Karsten, 2019. "Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 270-283.
    2. Pérez Caldentey, Esteban & Vernengo, Matías, 2024. "A Financially Driven Business Cycle for Latin America and the Caribbean," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 77(1), pages 5-36.
    3. -, 2020. "Economic Survey of Latin America and the Caribbean 2020: Main conditioning factors of fiscal and monetary policies in the post-COVID-19 era," Estudio Económico de América Latina y el Caribe, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 46071 edited by Eclac, September.
    4. Hari Venkatesh & Gourishankar S Hiremath, 2020. "Currency Mismatches In Emerging Market Economies: Is Winter Coming?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(1), pages 25-54, April.
    5. Giraldo, Iader & Turner, Philip, 2022. "The Dollar Debt of Companies in Latin America: the warning signs," National Institute of Economic and Social Research (NIESR) Discussion Papers 534, National Institute of Economic and Social Research.
    6. Alfredo SCHCLAREK & Jiajun XU, 2020. "Exchange rate and balance of payment risks in the global development finance architecture," Working Paper 15b03057-1f7f-44dc-93fa-5, Agence française de développement.
    7. Abeles, Martín & Pérez Caldentey, Esteban & Porcile, Gabriel, 2020. "The COVID-19 crisis and the structural problems of Latin America and the Caribbean: responding to the emergency with a long-term perspective," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    8. Schclarek, Alfredo & Xu, Jiajun, 2022. "Exchange rate and balance of payment crisis risks in the global development finance architecture," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    9. Karsten Kohler & Engelbert Stockhammer, 2023. "Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 32(2), pages 551-572.
    10. Hari Venkatesh & Gourishankar S. Hiremath, 2021. "The resurgence of currency mismatches: Emerging market economies are not out of the woods yet?," International Economics and Economic Policy, Springer, vol. 18(4), pages 721-742, October.
    11. Esteban Ramon Perez Caldentey & Lorenzo Nalin & Leonardo Rojas, 2022. "A baseline stock-flow model for the analysis of macroprudential regulation for Latin America and the Caribbean," Working Papers PKWP2217, Post Keynesian Economics Society (PKES).

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