Flood of Dollar Debt Could Come Back to Haunt Emerging Economies
Emerging-market companies are binging on U.S. dollar debt and that could become a source of trouble in some parts of the world if growth slows, interest rates rise or the dollar resumes its ascent.
.. U.S. dollar debt stood at $3.6 trillion in emerging markets through the third quarter of 2016, an all-time high
.. a bout of investor risk aversion could expose $135 billion worth of corporate credit to repayment problems.
.. If the dollar appreciates faster than expected, some corporate borrowers, especially those who derive their revenues largely in local currencies, could find themselves in a currency mismatch and be forced to ask the central bank for help—which not all central banks are positioned to do.
.. Countries such as India and the Philippines, which have relatively low stocks of external debt and healthy foreign-exchange reserves, are in better shape, analysts say. Economies such as Malaysia and South Africa, which have small currency reserves and high levels of dollar-denominated debt, are at particular risk. Venezuela and Turkey look especially vulnerable.
.. Venezuela’s state-run oil company PdVSA was late on its coupon payments worth $404 million in November, in an apparent struggle against low oil prices and falling foreign-exchange reserves.
.. “There are potential vulnerabilities looking further ahead, particularly if the Fed were to raise rates much more aggressively than what the market has priced at the moment,”