global development finance 2007
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Global Development Finance 2007. The Globalization of Corporate Finance in Developing Countries. T H E W O R L D B A N K. May, 2007. Key Messages. Slowdown in global growth and rising interest rates may induce a shift in benign financial conditions facing developing countries. - PowerPoint PPT PresentationTRANSCRIPT
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Global Development Finance 2007
The Globalization of Corporate Finance in Developing Countries
May, 2007
T H E W O R L D B A N K
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Key Messages
Slowdown in global growth and rising interest rates may induce a shift in benign financial conditions facing developing countries.
Private capital flows have continued to expand in 2006, but at a slower pace.
The financial globalization of the corporate sector in developing countries progressed.
Soft landing expected; downside global risks considerable.
Turkey’s performance impressive but challenges remain.
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-1
1
2
3
4
5
6
7
8
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
A moderation of global growth
Real GDP annual percent changeForecast
Developing
2009
Source: World Bank
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-1
1
2
3
4
5
6
7
8
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
A moderation of global growth
Real GDP annual percent changeForecast
Developing
2009
Developing ex. China &
India
Source: World Bank
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-1
1
2
3
4
5
6
7
8
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
A moderation of global growth
Real GDP annual percent changeForecast
Developing
High-income
2009
Developing ex. China &
India
Source: World Bank
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U.S. trade balance improving
-7
-6
-5
-4
-3
-2
Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006
Oil balanceNon-oil balance
Source: U.S. Department of Commerce.
Balance on goods, oil and non-oil (%GDP)
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-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1
OtherOPEC
FSUWorld
Non-OPEC supply is coming on stream
Change in oil deliveries (y/y millions of barrels per day)
Source: International Energy Agency
OPEC as swing producer
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Core inflation in high-income countries: still some worries
-2-1.5
-1-0.5
00.5
11.5
22.5
33.5
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
United Kingdom
United States
Japan
Euro zone
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Resilience depends partly on continued low long-term yields
and spreads
- 4
- 2
0
2
4
6
8
10
12
1980 1983 1986 1989 1993 1996 1999 2002 2006
United-States
United Kingdom
Source: World Bank
Japan
Euro zone
Real long-term government bond yields
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Regional growth: slower but still rapid in all regions
2
3
4
5
6
7
8
9
10
East-Asia &Pacific
Europe &Central Asia
Latin America& Caribbean
Middle-East &North Africa
South Asia Sub-SaharanAfrica
20052006200720082009
Percent change in GDP
Source: World Bank
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$ billions
0
100
200
300
400
500
600
700
1990 1993 1996 1999 2002 2005
0
1
2
3
4
5
6
Net private capital flows to developing countries
Percent of GDP (right axis)5.8% in 2005-6
Percent
$647 billion in 2006
Private capital flows have leveled off
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More capital is going to East Europe and Central Asia and to East Asia and Pacific
regions
Europe & Central Asia
26%
Latin America & Caribbean
47%
East Asia & Pacific
15%
Sub-Saharan Africa
5%South Asia5%Middle East &
North Africa2%
2000 2006
Total net private capital flows to developing countries
Latin America & Caribbean
14%
Middle East & North Africa
4%
South Asia6%
Sub-Saharan Africa
6%
East Asia & Pacific
28%
Europe & Central Asia
42%
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-20
-10
0
10
20
30
40
50
1990 1992 1994 1996 1998 2000 2002 2004 2006
-8
-5
-2
1
4
7
10
13
$ billionsNet private capital flows to Turkey
Percent of GDP (right axis)12% in 2005-06
Percent
Turkey has been attracting disproportionate amounts of
private capital
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Developing countries added record amount to reserves in
2006
Reserves grew by $633 bn vs. by $345 bn in 2005 to reach close to $ 2 trillion
This reflected a current account surplus of $ 348 bn (up by $ 92 bn on 2005) and net total capital flows of $ 571 bn (up by $ 90 bn)
The balancing item (errors and omissions and acquisition of foreign assets by DCs) was $ -286 bn vs $ -345 bn in 2005.
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-100
0
100
200
300
400
500
600
700
1990 1992 1994 1996 1998 2000 2002 2004 2006
Debt
Portfolio equity
FDI
$ billions
$234
$94
$325
Net private flows $647 billion in 2006
Equity flows account for the lion share
DebtDebt36 %36 %
EquityEquity64 %64 %
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$ billionsNet private debt flows to developing countries
Bank lending dominates the expansion in private debt flows
-100
-50
0
50
100
150
200
250
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Short-term debt flowsBank lendingBond flowsNet private debt flows
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0
2
4
6
8
10
Brazil Mexico Venezuela Peru Others*
$ billions
20
25
30
35
40
1998 1999 2000 2001 2002 2003 2004 2005 2006
Percent
Total value of public external debt buyback operations in 2006
Public external debt as a share of GDP in developing countries
* Including Philippines, Nigeria, Colombia, Panama, and Uruguay
Governments have continued to reduce their external debt…
39% in 1999
23% in 2006
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…while increasing their domestic debt
Source: World Bank staff calculations based on JP Morgan
0
10
20
30
40
1998 1999 2000 2001 2002 2003 2004 2005 2006
External DomesticPercent
Public debt as a share of GDP in 28 emerging market economies
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Increased M&A by emerging market firms ..
0
100
200
300
400
500
600
700
800
1990 1993 1996 1999 2002 2005
ServicesManufacturingPrimary
0
10
20
30
40
50
60
70
80
90
100
1990 1993 1996 1999 2002 2005
ServicesManufacturingPrimary
Number of deals
Cross-border M&A transaction by developing countries
Total value of deals
400
250
50
$ billion$ billion
$56
$32
$13
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0
15
30
45
60
75
2002 2003 2004 2005 2006
$ billions
OtherCountrie
s
China
…and record IPO transactions (led by China)…
$71 billion
Capital raised through Initial Public Offerings (IPOs) by companies in developing countries
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0
20
40
60
80
100
120
140
1998 1999 2000 2001 2002 2003 2004 2005 2006
Corporate
Sovereign
$ billions
Bond issuance by developing countries
$88 billion
$43 billion
Corporate bond issuance now exceeds sovereign borrowing
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0
50
100
150
200
250
300
2002 2003 2004 2005 2006
Other regions
East Asia and Pacific
Latin America and the Caribbean
Europe and Central Asia
Firm-level borrowing is up substantially…
$ billions
External debt contracted by corporations in developing countries
$293 billion
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Sharp increase in some emerging market equity prices could be a signal
of asset overvaluation MSCI equity price index (Jan. 2000 = 100)
0
40
80
120
160
200
240
280
320
2000M1 2001M1 2002M1 2003M1 2004M1 2005M1 2006M1 2007M1
EM Europe
Latin America
Global Composite
EM Asia
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0 200 400 600 800 1000 1200 1400 1600
Malaysia
China
Korea, Rep.
Thailand
Poland
Colombia
Croatia
Turkey
Panama
Argentina
Peru
Mexico
Brazil
Apr-07
Sep-98
Jun-97
Emerging market bond spreads may have moved into complacent
territoryJP Morgan EMBI Global Bond Spreads
Basis points
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ECA: External positions could come under pressure
0
5
10
15
20
25
Hungar
y
Alban
ia
Croat
ia
Turke
y
Mol
dova
Georg
ia
Roman
ia
Lithua
nia
Tajiki
stan
Bosnia
& Her
z
Eston
ia
Bulga
ria
Latvia
Kyrgy
z Rep
ublic
Current account deficit (% of GDP)
Percent
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-1 1 3 5 7 9 11 13 15 17
Burkina FasoChile
MalaysiaMoroccoLithuania
EstoniaBarbados
South AfricaIndia
KazakhstanBotswana
PakistanTurkey
UgandaArgentina
UkraineMauritius
Egypt, ArabParaguay
Kenya
Inflation is a concern in several developing countries
Consumer price inflation, year-over-year percent change2004
Inflation Inflation end
2006
Source: World Bank
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Key challenge ahead: managing the risk of an abrupt turn in the
credit cycle
Consequences would be severe in some countries
Risk under-priced in markets with large imbalances and/or incipient inflation?
Inadequate information relating to new instruments, borrowers and creditors
Structured financial products & hedge funds/private equity
External debt increasingly in corporate sector
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GDP growth in Turkey is moderating
0
1
2
3
4
5
6
7
8
9
10
Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 2005 2006 2007f
year-on-year percent change
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But Current Account Deficit Remains High
-10
-8
-6
-4
-2
0
2
4
2000 2001 2002 2003 2004 2005 2006 2007f
-40,000
-32,000
-24,000
-16,000
-8,000
0
8,000
16,000
Percent of GDP (left axis)
USD million (right axis)
Percent share of GDP and US current dollar value
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Public debt profile has improved but remains a source of
vulnerability
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006
Domestic debt
Externaldebt
Central government debt as percent share of GDP