OIL PRICES have perked up a bit, but producers are still reeling from the slump in crude prices last year. The boss of Pemex, Mexico’s state-owned oil firm, said this week that the company faced a “liquidity crunch”. Malaysia’s state oil firm is laying off workers. Petrobras, Brazil’s troubled oil giant, recently secured a $ 10 billion loan from the China Development Bank to help it to pay off maturing bonds. The trouble at these firms underlines broader concerns about the burden of corporate debt in emerging markets. A particular worry for resources firms is the rising cost of servicing dollar debts taken out when the greenback was much weaker than it is now. Short-term dollar loans to be repaid with earnings in falling currencies featured prominently in past emerging-market crises. But the concern about the role of dollar lending in the current cycle is different.
The numbers are startling. Corporate debt in 12 biggish emerging markets rose from around 60% of GDP in 2008 to more than 100% in 2015, according to the Bank for International Settlements (BIS). Places that experience a rapid run-up in debt often subsequently endure a sharp slowdown…Continue reading
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