Inflation Indexation and Products in Emerging Markets

Brice Bénaben and Stefania A Perrucci

Emerging countries have been pioneers in the inflation market. Brazil, Israel and Iceland issued their first inflation-linked bond in 1964; Chile and Colombia issued their first in 1967. For such pioneers, issuing inflation-linked debt provided one of the few viable long-term funding options to support on-going infrastructure and agriculture projects in the backdrop of the persistent high inflation environment of the 1960s, 1970s and 1980s (Figure 20.1). This contrasts with what occurred in developed countries. At the time of writing, the latter are the largest issuers of inflation-linked debt, but their inflation-linked programmes started much later,11 The UK Government started issuing inflation-linked bonds in 1981, the US Treasury started in 1997 and France followed in 1998. and, with the exception of the UK, not as a way to counteract high inflation but in order to meet investors’ demand for stable yields and portfolio diversification.

Although emerging countries’ inflation-linked debt accounts for only 20% of the total (Figure 20.2), it grew at a rapid pace from the early 2000s onwards, especially in Latin American countries (which together comprise three-quarters of

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