ICGFM Promotes Knowledge Transfer Among Public Financial Management Experts

Working globally with governments, organizations, and individuals, the International Consortium on Governmental Financial Management is dedicated to improving financial management by providing opportunities for professional development and information exchange.

Monday, May 17, 2010

Evaluating Sovereign Risk: Debt and Capital Markets

Tom Briggs of USAID introduced the subject of sovereign risk by pointed out that the world financial sector in 2007 showed that public sector debt represented about 1/2 the private sector debt in Developing Countries. The formula is almost the opposite in Emerging Markets. Mr.Briggs expects to see private debt expanding faster than public debt in Emerging Markets. Growth cannot occur until sovereign debt is better handled, according to Mr. Briggs. Mr. Briggs introduced the methods for underwriting sovereign debt.

Mr. Briggs introduced Mark Stumpf, Senior Partner, Arnold & Porter, LLP. Mark Stumpf concentrates his practice in international financial transactions in the public and private sectors. He advises foreign governments and public sector entities on financing, debt restructuring, and related transactions. He described how there can be multiple government borrowers in a country creating confusion.

Mr. Briggs also introduced Derrill Allatt, Managing Partner, of NewstatePartners, LLP. Mr. Allatt described how to determine a sustainable level of sovereign debt. Countries with a good history of paying back debt are often able to achieve better rates despite high debt to GDP ratio. Many European countries have high debt rollover ratios. The financial crisis has contributed to fiscal deficits through emergency spending such as bank takeovers with the reduction of tax revenue. Many countries suffer from trade deficits and exchange rate changes.

Mr. Allatt described the contagion effect. This occurred in the past through economies that were not always integrated. The herd effect is one of the possible contributors to financial crisis contagion. Many Emerging Country sovereign debt is now considered less risky than some countries in the European Union. He provided a Case Study on Belize and a discussion on Greece.

There was some discussion about the situation in Greece. Panelists agreed that the lack of transparency in Greece with misleading information increased the financial crisis. Panelists also agreed that the rating agencies need more independence in order to provide accurate information. Mr. Briggs suggests that the Internet had eliminated part of the revenue model turning rating agencies into profit centers.

Tom Briggs Sovereign Debt Espanol

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