FINANCE: Countries providing better information faster

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Apr 9 1996 (IPS) - In the wake of the Mexican peso meltdown in late 1994, most “emerging market” countries are providing better and more timely information to investors, according to a worldwide association of private and commercial banks.

The group, the Institute of International Finance (IIF), says much more can, however, be done to ensure transparency in international capital markets.

“Timeliness and level of detail matter,” said Charles Dallara, director of the IIF, which is working with countries and the International Monetary Fund (IMF) to set new standards for public reporting by governments.

Speaking at a news conference to release a new IIF report Tuesday, Dallara noted that the flow of private investment to emerging markets continues at historic levels, and warned that “if (emerging markets) wish to tap that finance, it’s important that they provide information.”

The report comes as private capital flows into the 28 emerging markets around the world appear to have recovered from a brief dip caused by the Mexican crisis.

Dallara pointed out that the IIF expects 200 billion dollars in private capital to flow to emerging markets this year.

The Mexican crisis was touched off in Dec. 1994, when the new government of President Ernesto Zedillo devalued the peso — a move that provoked the flight of billions of dollars in so-called “hot money” — mainly short-term investments in stock markets and bonds.

The peso, which lost half its value in just a few short weeks, was shored up only with an unprecedented 51-billion-dollar rescue operation by the IMF and the U.S. Treasury.

The IMF and the U.S. government, among others, later argued that the crisis could have been mitigated, or avoided altogether, if the Mexican government had made available to investors more information about its economic performance in a more timely way.

In September, 1995, the IIF, which represents 205 international private banks and investment firms, published a set of proposed data standards for emerging economies.

Leaders at the Halifax Summit of the Group of Seven (G-7) industrialised countries — where most of the IIF membership is based — called on the IMF last June to “establish benchmarks for the timely publication of key economic and financial data” and “a procedure for the regular public identification of countries which comply with these benchmarks.”

They said this could act as “an improved early warning system” to prevent crises like Mexico’s.

Earlier this year, the IMF released to the public for comment draft guidelines — on such benchmarks. Its recommendations are expected to figure high on the agenda during the annual spring meetings of the IMF and the World Bank here later this month.

In its new report, the IIF welcomed the IMF’s draft, but called for “more rigorous standards in certain areas, especially capital flows, external debt, and amortisation,” which refers to the deadlines for debt to be paid off in the course of a year.

The report itself identifies 19 categories of information wanted by investors and sets targets for the frequency and timeliness in which the data should be provided.

The categories include everything from inflation and exchange rates — information which are not considered especially sensitive by most governments — to amortisation schedules, public sector borrowing, and external debt structures.

The report also analyses the reporting performance of the 28 top emerging markets, which, together, account for about 90 percent of private foreign investment in developing countries.

Dallara said the trends among the 28 countries towards releasing that information are positive. “There is a real sense of momentum among all borrowing countries,” he said.

For example, all 28 countries report on their reserves — which gives investors some idea about the cushion a country might rely on in the event of a crisis — but only 44 percent provided that information in a timely manner one year ago. That percentage, according to the report, has since risen to almost 61 percent.

Among the markets with the best reporting records, according to the IIF, are Argentina, Brazil, Chile, the Czech Republic, Israel, Mexico, Peru, the Philippines, South Korea, Thailand, Turkey, and Venezuela.

Among those with less complete and timely records, according to the report, are China, India, Indonesia, Kuwait, Morocco, Saudi Arabia, and Tunisia.

Ironically, China has received by far the most private foreign investment of all emerging markets since 1990. Yet, with the exception of Saudia Arabia, it appears to offer investors the least information about its economic performance.

Dallara noted that, among investors, “there is a growing appetite for data on China (which) has ample room for inprovement.”