Why Argentina and Saudi Arabia Did Not Issue Long-Term Maturity Fixed-Term Bonds

Emerging Markets
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Emerging Markets
Governments issue foreign bonds to raise money to run their operations. They can print more money if they encounter problems repaying the bonds when they mature. However, although this may benefit the government, it reduces the value of the local currency, which is harmful to investors. For instance, if an investor earns 6% interest on a bond, and the local currency drops by 15% due to inflation, the investor loses money.
Investors invest their money in economies where they can assess the market and make informed decisions on the levels of risks and premiums in the lending markets. Therefore, economies with uncertain risks and premiums will likely face difficulties issuing long-term maturity fixed-rate bonds ("Darden Case Study"). Before 2004, the Argentine economy faced various uncertainties from political instability and scandals such as corruption in the government. For instance, a crisis resulted in banks limiting the number of transactions and fewer deposits from dep...