讲稿国际金融lending and financial crises

1、Huang zhiyong Nanjing University of Finance & Economics Tel：84028241INTERNATIONAL FINANCEChapter 7: International Lending and Financial CrisesIn this chapter we will take a close look at the causes and effects of lending and portfolio investment. International lending can bring major benefits of two

2、 types. First it represents inter-temporal trade. Second, it allows lenders and investors to diversify their investments more broadly.一、International financial capital flowsThe key categories:Private lending and investingLong termDirect investmentLoansPortfolio investmentShort termOfficial lending a

3、nd investingGains and losses from Well-Behaved International LendingAssumption:The world is stable and predictable;Borrowers fully honor their commitments to repay;Figure 7.1 shows the normal effects of allowing free international lending and borrowing.Figure 7.1Well-Behaved International LendingTax

4、es on international lendingIf Japan has market power to restrict its foreign lending and exploits this power by imposing a tax of 2 percent per year on the value of assets held abroad by residents of Japan.If America also has market power to restrict its borrowing and imposes the 2 percent tax on th

5、e same international assets.二、International lending to developing countriesThe surge in international lending, 19741982The rich oil-exporting nations had a high short-run propensity to save out of their extra e.pessimism in industrialized countries.resistance to FDI,Herding behaviorThe Debt Crisis O

6、f 1982In August 1982, Mexico declared that it was unable to service its large foreign debt.Mainly reasons:Debt conditionInterest rates increased sharply in the United States.Developing countries exports declinedError economic policiesOverlending and OverborrowingFigure 1 Net Financial Flows to Devel

7、oping Countries, 1981-2009 ($ Billions)Figure 21.3 Developing Countries External Debt Outstanding, 1970-2009 ($ Billions)Resolve:19821984 at the beginning19851988 Baker Plan1989, The Brady PlanThe resurgence of capital flows in the 1990sthe Brady Plan led investors to believe that the previous crisi

8、s was being resolved.Low U.S. interest rates again.The developing countries were ing more attractive places to lend as governments reformed their policies. Individual investors were looking for new forms of portfolio investmentsThe Mexican crisis, 19941995Why?High inflation rateCurrent account defic

9、it increased to 8% of GDP in 1994Banking system was rather weak, with inadequate bank supervision and regulation by the government.The year 1994 was an election year with some turmoil.Beginning in early 1994, the government replaced peso-denominated government debt with short-term dollar-indexed gov

10、ernment debt called tesobonos.Resolve:In Dec. the Currency was allowed to depreciate.Borrow up to $50 billion, mostly from the U.S. government and the IMF.The Asian crisis, 1997Why?Much of the foreign borrowing was by banks and other financial institutions.Government regulation and supervision were

11、weak.The external balance of the countries showed some problems: Thailands current account deficit rose to 8% of GDP in 1996.Figure 7.2Exchange Rates, Asian CurrenciesFigure： Exchange Rates, Asian Countries, 1994-2011The Russian crisis, 1998A large fiscal budget deficitIn mid-1998, lenders balked at

12、 buying still more Russian government debt,In July 1998, IMF organized a lending package of $23 billion. And the first loan of $5 billionIn August 1998, announced drastic measures: unilaterally “restructured” its ruble-denominated debt.Placed a 90-day moratorium on payments of many foreign currency

13、obligations of banks and other private firmsAllowed the ruble to depreciate by shifting to a floating exchange rate.The Brazilian crisis, 1999The fallout from the Russian crisis,The conditions:A large current account deficit High domestic interest ratesCrawling exchange rateIn November 1998, the IMF

14、 organized a package of $41 billion，but it failed to enact the fiscal reformsCapital outflows increasedIn Jan. 1999, ended its pegged exchange rate, the real depreciated,The situation did not escalate into a full crisis.It has sound and well regulated banking systemBy April 1999, it can issue new bo

15、nds to foreign investors.The Turkish crisis, 2001The fiscal deficit remained high, and the current account deficit widened to about 5% of GDPNovember brought the first signs of new trouble, and foreign lenders began to pull back.Argentinas crisis, 2001-2002Beginning in 1997 the peso experienced a re

16、al appreciation,Its fiscal situation had been one of its weak points all along.In early 2002 the government surrendered the fixed exchange rate, and the peso lost 75% of its value in the first six months of the year.The government defaulted on its debt.The peso depreciation caused huge losses in the

17、 banksthe mismatch of currency and termsThe crisis spread to its neighbors：Uruguay Brazil三、International Financial Crises: Sources of What Goes Wrong Overlending and overborrowingExogenous negative international shocksExcessive exposure to exchange rate riskVolatile international short-term lendingG

18、lobal ContagionIMF Loans Outstanding, 1970-2010 ($ Billions)Benefit-Cost Problem四、Resolving Financial Crises1、Rescue packagesCompensate for the lack of private lending Restore investor confidenceLimit contagion effectsImposes conditions as part of its lending2、Debt restructuringDebt rescheduling changes when payments are due, by pushing the repayments schedule further into the future. The amount of debt is effectively the same, but the borrower has a longer time to pay it off.Debt redu