Credit derivatives in emerging markets

Credit Derivatives are securities that offer protection against credit or default risk of bonds or loans. The credit derivatives emerging market has grown rapidly and credit derivatives are widely used. This paper describes the emerging credit derivatives market structure. The current market activity is analyzed through elementary pricing dynamics and the study of the term structure of default risk. Focusing on the performance of credit derivatives in stress situation, including legal and market risks, we discuss the potential consequences of a debt restructuring in a large emerging market borrower. The contribution of credit derivatives to the risk sharing in emerging markets is also examined.Emerging markets, derivatives, sovereign debt, debt restructuring

Banks, liquidity crises and economic growth

How do the liquidity functions of banks affect investment and growth at different stages of economic development? How do financial fragility and the costs of banking crises evolve with the level of wealth of countries? We analyze these issues using an overlapping generations growth model where agents, who experience idiosyncratic liquidity shocks, can invest in a liquid storage technology or in a partially illiquid Cobb Douglas technology. By pooling liquidity risk, banks play a growth enhancing role in reducing inefficient liquidation of long term projects, but they may face liquidity crises associated with severe output losses. We show that middle income economies may find optimal to be exposed to liquidity crises, while poor and rich economies have more incentives to develop a fully covered banking system. Therefore, middle income economies could experience banking crises in the process of their development and, as they get richer, they eventually converge to a financially safe long run steady state. Finally, the model replicates the empirical fact of higher costs of banking crises for middle income economies. –OLG growth models, liquidity, financial intermediation, financial fragility, banking crises

Wealth, financial intermediation and growth

This paper presents empirical support for the existence of wealth effects in the contribution of financial intermediation to economic growth, and offers a theoretical explanation for these effects. Using GMM dynamic panel data techniques applied to study the growth-promoting effects of financial intermediation, we show that the exogenous contribution of financial development on economic growth has different effects for different levels of income per capita. We find that this contribution is generally increasing with the level of income per capita of the economy, up to a relatively high level of income. This contribution is consistently lower for poor countries; and for some low levels of income per capita it can be negative. We provide a model to account for these wealth effects. The model is a overlapping generations growth model where financial intermediaries implement liquidity risk sharing among depositors. We show that at early stages of economic development, a bank can increase welfare of its depositors only at the cost of lowering investment and growth. However, once the economy has crossed certain wealth threshold, the liquidity role of banks becomes unambiguously growth enhancing. As wealth increases, banks offer improving liquidity insurance, and higher growth; however, for high levels of wealth, growth generated by financial intermediation declines as the economy attains the optimal level of consumption risk sharing.Financial development, economic growth, OLG growth models, liquidity, financial intermediation

Impossible protest: noborders in Calais

Since the closure of the Red Cross refugee reception centre in Sangatte, undocumented migrants in Calais hoping to cross the border to Britain have been forced to take refuge in a number of squatted migrant camps, locally known by all as ‘the jungles.’ Unauthorised shanty-like residences built by the migrants themselves, living conditions in the camps are very poor. In June 2009, European ‘noborder’ activists set up a week-long protest camp in the area with the intention of confronting the authorities over their treatment of undocumented migrants. In this article, we analyse the June 2009 noborder camp as an instance of ‘immigrant protest.’ Drawing on ethnographic materials and Jacques Rancière's work on politics and aesthetics, we construct a typology of forms of border control through which to analyse the different ways in which the politics of the noborder camp were staged, performed and policed. Developing a critique of policing practices which threatened to make immigrant protest ‘impossible’, we highlight moments of protest which, through the affirmation of an ‘axiomatic’ equality, disrupted and disarticulated the borders between citizens and non-citizens, the political and non-political

Crises and growth: A re-evaluation

We address the question of whether growth and welfare can be higher in crisis prone economies. First, we show that there is a robust empirical link between per-capita GDP growth and negative skewness of credit growth across countries with active financial markets. That is, countries that have experienced occasional crises have grown on average faster than countries with smooth credit conditions. We then present a two-sector endogenous growth model in which financial crises can occur, and analyze the relationship between financial fragility and growth. The underlying credit market imperfections generate borrowing constraints, bottlenecks and low growth. We show that under certain conditions endogenous real exchange rate risk arises and firms find it optimal to take on credit risk in the form of currency mismatch. Along such a risky path average growth is higher, but self-fulfilling crises occur occasionally. Furthermore, we establish conditions under which the adoption of credit risk is welfare improving and brings the allocation nearer to the Pareto optimal level. The design of the model is motivated by several features of recent crises: credit risk in the form of foreign currency denominated debt; costly crises that generate firesales and widespread bankruptcies; and asymmetric sectorial responses, where the nontradables sector falls more than the tradables sector in the wake of crises.Bailouts, bottlenecks, credit market imperfections, currency mismatch, financial fragility, macroeconomic voliatility

Systemic crises and growth

In this paper, we document the fact that countries that have experienced occasional financial crises have on average grown faster than countries with stable financial conditions. We measure the incidence of crisis with the skewness of credit growth, and find that it has a robust negative effect on GDP growth. This link coexists with the negative link between variance and growth typically found in the literature. To explain the link between crises and growth we present a model where weak institutions lead to severe financial constraints and low growth. Financial liberalization policies that facilitate risk-taking increase leverage and investment. This leads to higher growth, but also to a greater incidence of crises. Conditions are established under which the costs of crises are outweighed by the benefits of higher growth.Financial constraints, growth and institutions, bailout guarantees, volatility, emerging markets

Humanitarian Action and Military Intervention: Temptations and Possibilities.

Although the war in Liberia in July 2003 claimed hundreds of lives, the international community was reluctant to intervene. In this article, the author debates the question: does international military intervention equal protection of populations? The role of humanitarian organisations in military intervention is considered. Aid organisations cannot call for deployment of a protection force without renouncing their autonomy or appealing to references outside their own practices. Such organisations provide victims with vital assistance and contribute to ensuring that their fate becomes a stake in political debate by exposing the violence that engulfs them, without substituting their own voices for those of the victims. The political content of humanitarian action is also outlined and military intervention in the context of genocide is discussed. The author concludes that the latter is one of the rare situations in which humanitarian actors can consider calling for an armed intervention without renouncing their own logic

El resentimiento antiestético

La versión original de este artículo apareció como “Le ressentiment anti-esthétique” en el Magazine littéraire nº 414 de noviembre de 2002. La estética no es una disciplina que haya tenido por objeto las prácticas artísticas o el juicio del gusto. Es todo un régimen de identificación del arte y supone todo un régimen de pensamiento