Developing countries may find that their access to financial markets is limited. For example, although they may be able to obtain Eurodollar loans they may find they cannot bond finance or loans in non-dollar currencies. While some countries may be able to do swap transactions at low cost, this may be expensive or impossible for others. It is therefore important that debt managers consider how to increase low-cost access to markets.
Policymakers need to make strategic decisions concerning borrowing from official sources. Countries are often able to borrow more nonconcessional official money if they wish, but building up a pipeline of good projects takes time. Since bilateral and multilateral agencies usually operate within rolling 3- or 5-year lending programmes it is not usually possible to increase lending quickly. This means that debt managers have to be aware of foreign exchange needs over the medium term, as well as for the current year.
1. Coordination. Borrowing can be much more expensive if several borrowers from the same country approach the same market at the same time. Some governments avoid competition for loans by requiring public bodies to queue, so that only one borrower at a time is allowed to approach the market. In Korea the commercial banks (the main private borrowers) are included in such a system. In other countries, such as Portugal, the central bank can refuse to authorize borrowing if the spread over the London interbank offered rate (LIBOR) or the USA prime rate is above a specified level.
2. Reputation. A country needs to establish a good name in the market. This will depend partly on economic performance and a willingness to change policies. As an example, the Indonesian government has consistently been ready to cut spending, raise revenues or devalue the currency in times of difficulty and consequently can borrow at lower cost than most countries at similar income levels. Also, because international capital markets are segmented, a good reputation in one market does not guarantee such a reputation in another - lenders need to get to know borrowers. Again, the perception that individuals and non-bank financial institutions have of a country's creditworthiness may differ considerably from that of commercial bankers. Gradual access to markets by borrowing on a small scale when money is not urgently needed may help to establish confidence.