Treasury Finance and Development Banking: A Guide to Credit, Debt, and Risk, + Website

CHAPTER 4

Emerging Markets and Liquidity

We have reached a point in our narrative where we have introduced the role and activities of development banking, the fundamentals of discounting, and the fundamentals of credit. Before moving on to the topic of debt, we pause to discuss a topic that is important in a geographical and a conceptual way.

Emerging markets are not only important in being the geographical area where development banking plays its principal role, they are also a showcase of specific financial features that are not found elsewhere. We shall focus on these because each of them is, in a way, a manifestation of credit that is and remains our principal focus. We introduce the concept of liquidity, present the difference in trade maturities between developed and developing markets, discuss the explicit higher credit risk of emerging market entities; and finally, raise the specific topic of capital control.

We will conclude the chapter with an example of the involvement of development banks in emerging markets in terms of borrowing and lending, the latter with the help of a few realistic case studies.

4.1 THE DEFINITION OF EMERGING MARKETS

Paraphrasing St. Augustine, we could say: what then are emerging markets? If no one asks me, I know what they are. If I wish to explain it to him who asks, I do not know. The term was coined by Antoine Van Agtmael, an economist at the World Bank, in the 1980s, and particularly in financial as opposed to economic terms, it should describe ...