Human Security as a Measure of Country Risk in the Assessment of Emerging Market Bonds

Abstract

Sovereign bond issuance by emerging market countries is growing in both volume and frequency. The global credit rating agencies have eagerly assigned ratings to the new issuers. Traditional approaches to measuring country risk, however, may fall short when applied to developing economies. What works for Canada and Switzerland may not be applicable to perennial newsmakers like Iraq and Pakistan, both of which have issued US dollar bonds in recent years. This paper will suggest a new way to think about the spectrum of investment risks expressed by these bond market newcomers. Specifically, it is proposed that all sovereign defaults have their origins in the vulnerabilities that fall under the amorphous human security rubric. A government’s decision to suspend interest payments on internationally traded bonds is entirely political, and is always made with reference to a complex of internal non-military challenges. The paper will explore through case studies whether the human security weaknesses of emerging market countries are expressed in the trading of the US dollar bonds of those nations. It follows then, that payment suspensions by beleaguered governments might also be traced to upstream breakdowns in food and water security, health care access, democratic processes and other core human needs.