How much can governments borrow? Financialization and emerging markets government borrowing capacity

This article considers the varied borrowing capacity of emerging market governments, a key component of the impact on governments of financial globalization. It focuses on the link between the financialization – defined here as the ability to trade risk – and borrowing capacity, analyzing three case study countries: Brazil, Lebanon and Turkey. Both domestic and international bond markets are considered and differences in the ownership of government bonds in the three countries are highlighted. The financialization of different financial market actors is analyzed, concentrating on two of the most important, domestic commercial banks and individual investors, and the financialization of the structure of each market. It is argued that the greater the financialization, the greater the ability to exit or short. This increases the cost of borrowing and increases the likelihood, and severity, of crisis, thereby reducing government borrowing capacity. Comparative event studies from the three countries demonstrate the influence of financialization in crisis, or potential crisis, situations.