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Optimal Currency Composition of Foreign Debt: The Case of Five Developing Countries

  • Pier Giorgio Gawronski
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    Many developing countries lack access to future and option markets to hedge the enormous risks arising from the currency exposure of their foreign debt. And even if these markets are accessible, their maturities are often too short compared to the maturities of long-term debt. The important hedging instrument available for any country, however, is the currency mix of foreign debt itself. This paper provides a theory for the optimal currency composition of foreign debt for market constrained developing countries. It also develops the empirical methodology to determine the optimal currency mix which is then applied. Applying the method to Brazil, Indonesia, Mexico, the Philippines and South Korea, the optimal mix is compared to alternative currency compositions, both in terms of foreign exchange gains and losses as well as variability of balance of payments flows ... De nombreux pays en développement manquent d'accès aux marchés à terme et d'options pour se protéger des énormes risques liés à la précarité de leur monnaie due à leur dette extérieure. Même quand ces marchés leur sont accessibles, les échéances sont souvent trop brèves au regard de celles de leur dette à long terme. L'association de différentes monnaies constitue cependant un efficace moyen de protection pour tous ces pays. Cette étude présente une analyse de la composition monétaire idéale de la dette extérieure pour les pays en développement contraints de la négocier sur le marché financier. Elle définit également une méthodologie empirique destinée à déterminer la composition monétaire optimale. Son application au Brésil, à l'Indonésie, au Mexique, aux Philippines et à la Corée du Sud permet de comparer cette composition optimale à d'autres compositions monétaires, à la fois sur le plan des gains et des pertes dans le domaine des échanges extérieurs et sur celui des variations ...

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    File URL: http://dx.doi.org/10.1787/021451754503
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    Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 23.

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    Date of creation: Aug 1990
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    Handle: RePEc:oec:devaaa:23-en
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