The BIS’ Offhand Offshore Debt Detour
The Bank for International Settlements’ September quarterly review retrospectively hailed record emerging market cross-border lending in Q1 and corporate debt issuance mainly from Brazil and China through offshore financial centers now surpassing the advanced economy total. Asia and Latin America were favored regions, as the Eurozone bottomed and the Middle East/Africa steadied. Japanese banks through headquarters and local units have regained the top international credit position focused on syndicated and trade activity in rapidly-growing neighbors. From end-2012 through March developed world borrowing fell 2.5 percent or $325 billion, with the US, Europe and Japan all down. German and American banks rank just behind Japan’s in their global share at almost one-quarter combined, and half of the megabanks’ $4 trillion in claims are covered by home deposits. Developing country lines were up 8.5 percent or $275 billion, nearly 90 percent concentrated in Brazil, China and Russia. Euro area parents increased exposure for the first time in two years. India and Turkey were among other big recipients prior to the capital outflows triggered in May with their outsize current account deficits and private sector debt loads. Argentina and Hungary were shunned on policy interference, while advances rose modestly in Saudi Arabia and South Africa. The emerging economy portion of interbank lending has doubled to close to 15 percent the past five years, two-thirds focused on the Asia-Pacific. Latin America’s contribution has also climbed with US lenders the leading commercial players. As of mid-2013 25 percent of all emerging market external corporate bonds, almost $100 billion on an annual basis, went through offshore administration and tax-advantaged domicile. The fraction was 3 percent above advanced economies, with two-thirds raised from Brazilian and Chinese names. For the latter 15 percent was renimbi-denominated, with energy and property companies prominent.
In its own international capital flow take, Geneva-based UNCTAD described “atypical behavior” since 2008, with investor sentiment instead of economic fundamentals steering allocation within the industrial world’s zero interest rate condition. Currency intervention and inflow controls and taxes have been deployed as portfolio swings in global financial assets triple the GDP level can be destabilizing, according to the agency. Private funding tends to be pro-cyclical and often detached from underlying real productive needs, and it urges greater reliance on domestic securities markets. Basel-type regulatory standards are not a good response for many developing countries that have experienced “sudden stops” despite high capital and liquidity ratios. Domestic demand support should be the credit priority, and state direction and guarantees may be emphasized especially to aid small business and long-term maturity. Central banks that have already conducted unconventional anti-crisis monetary policies should mobilize available tools for unmet commercial purposes and national development banks that once played a key financial sector role could be revived as specialist providers in this peculiar current capital environment, the UN recommends.
