The anticipated cessation of LIBOR at the end of 2021 presents an ominous predicament for foreign lending into emerging market economies.
Borrowers in these markets must often account for revenues earned in local currencies and deal with central bank requirements regarding foreign exchange and currency transfers and other regulatory controls.
In many cases, such processes have hardened around the predictability afforded by forward-looking term LIBOR based rates. LIBOR’s replacement, at least for some period of time, by a non-forward looking benchmark may make it far more challenging for borrowers to comply with their loan payment obligations and could increase payment default risk.
LIBOR’s end is also likely to disrupt new foreign loans into emerging markets until new measures and practices are adopted by the relevant market participants.
Replacement of LIBOR
For several decades, LIBOR has been the most widely...