For a brief period, it looked as though some emerging market
governments might follow their wealthier G7 colleagues and bail
out strategic corporate and bank borrowers burdened with high
levels of foreign currency debt. The better-heeled countries
like Russia started to use their reserves for this purpose. The
less well-to-do looked to the newly-recapitalised IMF to keep
private sector borrowers, or at least the more important ones,
That era is ending fast. Even Russia's large reserves (which
approached $600 billion last summer) have proven insufficient
for the dual challenges of defending the ruble and bailing the
private sector out of its maturing foreign currency debts. This
means that we are likely to see hundreds of individual debt
workouts by emerging market corporate and banking sector
borrowers over the next 12 months. Eastern Europe, Russia and
parts of Asia will be affected.
The last time the financial system faced a...