World Bank Document

icit, it is likely to crowd out others. However, if the As FRNs can be more marketable than fixed rate
host country has a strong current account and bonds, they offer a means by which some developwishes
to encourage a capital outflow, it will often ing countries might graduate to the fixed rate marallow
its domestic bond market to be tapped by kets.
foreign borrowers.
Another type of security that is already estab- Assessment
lished and may become more important for developing
countries is the floating rate note (FRN). The growth in international bank lending during
These instruments have flourished in recent years the past fifteen years has on balance been benefiin
the Eurobond market and some foreign bond cial to developing countries, despite the difficult
markets (see Table 8.1 and Box 8.8). They have economic adjustments they have had to make
provided much of the buoyancy in bond markets. recently. In the 1970s, the banks' recycling of the
Table 8.1 International bond issues and placemLents, 1965, 1970, and 1975-84
(billions of dollars, unless othernvise noted)
Type of issue or placement 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
Issues or placements in foreign markets 2.4 2.4 12.3 18.9 16.6 20.7 20.3 17.9 20.5 25.2 27.1 27.8
Amount by developing countries 0.1 0.1 0.5 0.9 1.6 2.2 1.2 0.6 1.1 0.6 0.6 1.2
Percent by developing countries 4.2 4.2 4.1 4.8 9.6 10.6 5.9 3.4 5.4 2.4 2.2 4.3
Issues in the Eurobond market 0.9 3.5 10.5 15.4 19.5 14.9 18.6 20.4 31.3 50.3 50.1 81.7
Amount by developing countries 0 0.1 0.2 1.1 2.5 3.0 1.9 1.2 3.1 3.7 2.1 2.6
Percent by developing countries 0 2.9 1.9 7.1 12.8 20.1 10.2 5.9 9.9 7.4 4.2 3.2
Total international bond issues 3.3 5.9 22.8 34.3 36.1 35.6 33.9 38.3 51.8 75.5 77.2 109.5
Amount by developing countries 0.1 0.2 0.7 2.0 4.1 5.2 3.1 1.8 4.2 4.3 2.7 3.8
Percent by developing countries 3.0 3.4 3.1 5.8 11.4 14.6 8.0 4.7 8.1 5.7 3.5 3.5
Issues of floating rate notes
Amount by all entities .. .. 0.3 1.4 2.2 2.9 4.2 4.8 11.3 15.3 19.5 38.2
Percent of total bond issues .. .. 1.3 4.1 6.1 8.1 10.8 12.5 21.8 20.3 25.2 34.9
Note: Details may not add to totals because of rounding.
Source: OECD Financial Statistics 1971; OECD Financial Market Trends 1984.
Box 8.8 Floating rate notes
The first floating rate note (FRN) was launched in the
Box figure 8.8A Growth of the floating rate note
market, 1975-84
Eurodollar market in 1970. As Box figure 8.8A shows,
issues grew quite slowly until the late 1970s, but have Billions of dollars
expanded dramatically in the past four years. 40 _
Private corporations, commercial banks, and government
bodies all issue FRNs. Only a few developing countries
have done so: Mexico and Brazil before their debt- 30 Floating rate notes of all entities
servicing difficulties in 1982, and since then mainly those ------ l---
East Asian countries that have avoided debt problems.
For some developing countries-such as Malaysia and
Thailand recently-the FRN market has became less 20
expensive than syndicated loans. Institutional investors
and individuals have bought FRNs, but the biggest buyers
are commercial banks. They have taken about 70 per- 10
cent of all FRNs, either holding them on their books as
Floating rate notes of
investments (to match their floating rate liabilities) or
developing countries
using them as a substitute for syndicated lending. ,
There may be scope for developing countries to tap 0
this market further as their creditworthiness improves. 1975 1977 1979 1981 1983
These instruments, however, require the borrower to Source OECD Financial MarketTrends
bear the interest rate risk.
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