- In contrast to the stable average stocks of debt, the composition of these debt stocks (by lender, currency and location) have changed visibly over the last 15 years.
- By lender: private lending shifted from bank- to bond-based (private lending), while official lending moved from bilateral to multilateral. On the other hand, in contrast with the conventional view that booming international markets have dwarfed the economic importance of multilateral financial institutions, the latter continue to be an economically important source of finance across the region.
- By place of issuance: the incidence of domestically issued debt has increased remarkably over the last decade, accounting for most of the growth in debt ratios.
- By currency: the region has exhibited a strong de-dollarization trend in recent years, largely as a result of the growing reliance on domestic markets. Indeed, the evidence presented here also confirms the link between currency and location previously highlighted in the literature: domestically issued debt has been primarily (and increasingly) denominated in the local currency, while external debt has been almost entirely issued in a foreign currency.
- A common concern has been that de-dollarization in the region has come at the expense of a higher share of short term debt. Although data on maturity is relatively limited, this paper shows that this concern is generally not valid; de-dollarization has often not come at the expense of lower maturities.
Kevin Cowan is with the Central Bank of Chile, Eduardo Levy-Yeyati is with Universidad Torcuato di Tella and the Research Department of the Inter-American Development Bank, Ugo Panizza is with the Research Department of the Inter-American Development Bank and Federico Sturzenegger is with Universidad Torcuato di Tella and the Kennedy School at Harvard University. This work was financed by the Network of Central Banks and Finance Ministries of the Regional Policy Dialogue and was made possible by the help of the members of Network of Central Banks and Finance Ministries. The views expressed in this paper are those of the authors and do not necessarily reflect those of the institutions with which they are affiliated. The authors thank Laura Clavijo, Federico Dorso, and María Fernández for outstanding research assistance. This is the Inter-American Development Bank Research Department Working Paper #577, published in October 2006.