On Wednesday, September 22 1998 IDEAglobal.com published a research paper on emerging markets that was sure to move the markets. We made it available first on the TimeMachine. Bankers worldwide rushed to download.
What we said:
The G7 richest nations would make a major policy announcement to boost emerging markets within a month. "The main initiative being talked up is the institution of a pool of hard currency, probably about $50bn to $60bn, that in theory all emerging market countries will have access to," said John Davitte, head of IDEA's emerging-market research. G7 central banks and the IMF would provide access to the money in return for local-currency debt. We warned emerging markets would rally, in particular Latin American debt and South African markets.
How the markets moved:
The charts speak for themselves. Emerging-market debt rallied. JP Morgan's EMBI spread, which measures how much Brady bonds yield on average above US Treasuries, fell 77 basis points on the day. Argentine pars performed particularly well. Mexico's peso, Latin America's only free-floating currency, strengthened sharply. And as confidence returned to markets worldwide, South Africa's rand jumped.
What they said - 22 September:
Newswires liked the report enough to question central bankers and government officials. The British Treasury was unaware of any impending announcement of a $50bn swap facility for emerging markets. US deputy Treasury secretary Lawrence Summers's response to questions on a swap facility was "I have nothing for you on that. No comment." US Federal Reserve Bank of New York President William McDonough also declined to comment.
What a senior official of the IMF reportedly said - 24 September:
"While he conceded that the world economy was 'in a mess' he insisted that it would not 'fall into a world recession' in the coming months. He also made clear that a huge 'contingency fund' now being assembled for Latin America -- chiefly to support Brazil -- would require direct contributions from major economic powers around the Globe, including the United States."
What "The New York Times" said - 28 September:
"Calculated Risk: U.S. and I.M.F. Lead Push for Brazil Bailout Plan" by Louis Uchitelle