wolfstreet.com / by Don Quijones •
Fearing “a large-scale crisis” in foreign currency debt.
Since central banks embarked on their madcap ZIRP and QE during the Financial Crisis, emerging-market companies have not been able to resist the fatal allure of cheap dollar debt. As the good times rolled, the risks were ignored.
In relative terms, dollar-denominated debt recently reached a record 17% of global GDP excluding the US, a ratio that has doubled over the past 20 years. Some countries are more exposed than others. In its latest report on Mexico, the IMF pointed out that almost a quarter of all of the corporate debt in circulation in the country is denominated in dollars. That’s roughly the equivalent of 25% of Mexico’s GDP ($1.1 trillion in 2015).
Foreign denominated liabilities jumped 83% over the past four years to 1.7 trillion pesos ($82 billion). During the same period, Mexico’s non-petroleum exports increased by just 10%, meaning that the ability of private companies to generate the dollars needed to continue meeting their burgeoning dollar-denominated debt obligations has weakened significantly.
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