WASHINGTON, Oct 22 2007 (LBO) – Sri Lanka has been included in a new World Bank backed initiative to expand the international appeal of local currency bonds of emerging countries. The International Finance Corporation (IFC), the World Bank’s private sector financing arm, and the International Bank for Reconstruction and Development (IBRD) which finances middle income countries would first raise five billion dollars.
“Seventy percent of the emerging market bonds are denominated in local currency bonds, but only 10 percent of the foreign money going into emerging market bonds is denominated in local currency,” says Micheal Klein of the IBRD.
“The other 90 percent is denominated in foreign currency. So there is now a possibility to open up emerging market local currency debt for foreigners, helping countries manage their exchange rate risks better.”
IFC says about 4,000 billion dollars worth of emerging market debt is in issue of which about 1000 billion dollars is tradable as most of it is tied up in reserve requirements.
Of the tradable portion only about 700 billion is denominated in local currency.
The Global Emerging Markets Local Currency Bond Fund