Don't assume

Author: | Published: 1 May 2009

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, afloat.

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...