CHAPTER 3
that suffered capital account crises in the past had weaker foreign exchange liquidity positions a year before such crises (figure 3.15). On this metric, the countries most at risk are the Baltic states (though Estonia must now be excluded as it joined the euro in January 2011), but their dependence on one country for most of their foreign exchange liquidity needs (Swedish banks dominate their banking sectors) likely lessens these risks because such concentration facilitates debtor and creditor coordination. In sum, emerging Europe’s external solvency and liquidity positions are in some respects stronger than those of emerging markets that suffered balance of payments or debt crises in the past, particularly taking into account the strength of parent bank support, the particular role of FDI, and the sizable foreign exchange reserves many of these countries have. Institutional developments in
Net foreign assets (percentage of GDP)
Net debt (percentage of GDP)
Figure 3.13: Emerging Europe is solvent, the EU cohesion countries less so (net foreign assets and net debt, percentage of GDP, 2009)
Note: The right panel reports net debt, which is international debt assets plus foreign exchange reserves minus international debt liabilities as a percentage of GDP. Ireland is excluded from the right panel as its data are distorted because international mutual funds hosted by Ireland are recorded as positive net debt, even though these resources are not related to the domestic economy. The light blue columns in both panels represent the EU cohesion countries. Similarly, the dark green columns are capital account crises countries in East Asia and LAC (Latin America and the Caribbean) regions in the 1990s and 2000s as well as Turkey in 2000. The light green columns are the 2009 regional averages for East Asia and LAC. Source: Updated and extended version of dataset constructed by Lane and Milesi-Ferretti 2007.
Figure 3.14: Greater debt exposure in Southern Europe, more equity exposure in the east (aggregate external net equity and net debt exposures, percentage of GDP, 2002–09) Note: Arrows begin in 2002 and end in 2009. The arrows for each region are median values. The dots are the median values for the reference groups. Ireland is excluded from net debt position (see note for figure 3.13). Source: Updated and extended version of dataset constructed by Lane and Milesi-Ferretti 2007.
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