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April 2008 | ifr special report | 11 NON-CORE BOND MARKETS ROUNDTABLE

what has happened last year and this year, we are clearly more focused on funding in those markets. The markets in these countries are improving, capital markets are developing and, therefore, I think it is not by chance that if we talk about problems, we talk about the past. Actually, I do not see any currencies, any bonds where we have these legal problems. I think we have made a lot of progress over the last few years and I am very confident that the development of capital markets will continue and that we as an issuer will focus more and more on funding issues instead of talking about developing capital markets.

Holger Kron: What I would say is that the Russian crisis was really a one-off. A lot of things that happened had not been experienced before and have not been experienced since in a lot of other crises we have seen around the globe. The South African rand or ISK case at the moment is signalling that you are still able to act in a crisis and that the flows themselves are managed okay. Obviously, you cannot get a price for big size, but if there is a redemption, it gets managed well. What we saw in Russia is probably a one-off for the time being. I agree with the due diligence situation,

but the key currencies, where the bulk of funding is done and where the bulk of investment is done, are probably not at risk regarding these issues. When we get to this extra layer of credit

on structured FX-linked bonds, it gives a notion of the negative. Personally, I think those markets really offer an alternative investment to key markets when you have more benefits than negatives. I just had the impression we had got a little bit too negative and wanted to bring everyone back to the positive side. Look at US dollar or euro investments;

you get less yield than what inflation is probably going to be. You have a massive FX exposure, which has been proved just in the last 10 days when the euro/dollar moved from 1.45 to 1.60. This really shows you that your exposure is, or can be, really big for key currencies as well. If you compare this sort of behaviour with a lot of the niche currencies, you will probably find that the yield/risk perspection for a lot of them offers a greater opportunity. And back to the question of what the

new key currency will be: people’s focus will be and they will jump where the

Isabelle Laurent, EBRD; Paul Johnson, RBC Capital Markets; Horst Seissinger, KfW “

What I would say is that the Russian

crisis was really a one-off. A lot of things that happened had not been experienced before and have not been experienced since in a lot of other crises we have seen around the globe.

risk/FX relationship tends to work out as a positive result, and the more it looks like this is happening, the more that people will jump on it. The structure of FX linkage is only a vehicle to take certain risks. In terms of Brazil, I think the Russian situation is highly unlikely to happen again in Brazil. We are at a totally different point of development in Brazil, and I don’t see it happening that we will get the stress that needs to be in the system to create that sort of environment.

” Isabelle Laurent: I did not mean to be

unduly negative, because I am actually very positive about these markets. I actually think that they tend to say what they are on the tin. In general, when they are going into a domestic market,

people know what kind of risks they are taking and they feel that they are being compensated for them. I would not in any way wish to suggest otherwise. But I also think that people walked

into what they thought were large, liquid, mainstream deals, and actually there was no liquidity: you could not necessarily sell if you wanted to, or they were fire-sale prices. But now, although you get compensation

for liquidity in exotic markets, it may not actually be dramatically different in terms of true liquidity, because there are people who are prepared to bid in these markets at the moment. I am just saying that if you go into domestic markets, they are less well developed, the infrastructure seems to be less well developed, so you need to be compensated for that. We were talking about creation of

money market indices, and we have MosPrime that actually seems to have been working more soundly than sterling Libor, US dollar Libor or Euribor recently. Maybe you could call it a market disruption when you start looking at the dissonance between Libor and futures in some of those markets versus some of the indices that have been created in the domestic markets.

Moti Jungreis: The illiquidity right now in the market is not an EM problem: EM has actually been fairly stable. Actually, we could call what we see in the US a real crisis! And there is a lot of stuff that people bought over they that they now feel they shouldn’t have.

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