Long-Term Finance in EMEs: Navigating between Risks and Policy Choices

Emerging market economies (EMEs) are making important strides in developing long-term finance capital market vehicles to support investment in strategic areas such as infrastructure. However, since last year, EMEs have suffered from big shifts in terms of market sentiment. While EMEs ’ prospects were clearly overhyped in the wake of the crisis, the bleak forecasts that dominated headlines in the second half of last year were similarly exaggerated. There are still a number of factors indicating that EMEs ’ role in the global economy will continue to grow—just not as rapidly or dramatically as previously thought. There are two main reasons for the shifting market sentiment regarding EME assets. First, there is the fact that the broad-based growth slowdown in EMEs that began last year appar-ently reflects underlying fragilities. The previous enthusiasm regarding EMEs ’ growth prospects stemmed from the percep-tion that they had some postcrisis avenues of opportunity, regardless of the feeble recovery in advanced economies (Ca-nuto, García-Kilroy, and Silva 2010). Healthy public and pri-vate balance sheets in the aftermath of the crisis and existin