Managing foreign debt and liquidity risks

BIS Policy Papers No 8
September 2000

A small group of senior central bankers from the emerging markets met at the BIS in December 1999 to discuss the management of foreign debt and liquidity. Recent crises have revealed major shortcomings in these policies and the dangers of excessive foreign debt, particularly short-term debt. Two days of discussion highlighted the various issues confronting policy makers. The first paper in this book provides an overview of these issues and the papers that follow highlight the experiences of specific economies.

The issues discussed include the idea of "national liquidity", the question of how much government debt should be issued domestically and how much externally, the development of domestic bond markets and the relationship between government debt management and reserve management. The papers also examine possible policies towards the management of the private sector's external debt. Such policies include prudential rules for banks, capital controls, disclosure requirements and regulations on corporate borrowing.

Chapters