Why Emerging-Market Debt Issuers Are Vulnerable

$2 trillion debt boom leaves emerging-market companies, and banks, at risk at the first sign of trouble.

Emerging-market companies that took on more than $2 trillion of foreign borrowing since 2008 are vulnerable to an evaporation of funding at the first sign of trouble, according to the Bank for International Settlements (BIS).

Bond investors willing to lend generously when conditions are good can pull out in a crisis or when central banks tighten monetary policy, analysts led by Claudio Borio, head of the monetary and economic department, wrote in the BIS annual report. Emerging-market companies that lose access to external debt markets may then be forced to withdraw bank deposits, depriving domestic lenders of funding as well, they said.

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