DDP 751. Peter K. Cornelius. "Reforming the Public Sector’s Risk Management in Emerging Markets." February 2000. 27 pp.

External borrowing involves market risk stemming from changes in interest rates and exchange rates. In light of the recent crises in the emerging markets, private and public risk management has been identified as one of the key reform areas. In focusing on sovereign debt, this paper proposes a value-at-risk (VaR) approach similar to risk management tools employed by commercial banks. The paper also examines recent developments in the derivatives markets and discusses the potential importance of insurance-based instruments to hedge risk. Finally, the paper focuses on institutional reforms, in the absence of which the implementation of more sophisticated risk management strategies would appear unlikely.

Keywords: derivatives markets, insurance, moral hazard, market risk, VaR

JEL Codes: G22, F 32, O16

Peter K. Cornelius is the Director of the Global Competitiveness Report Program of the World Economic Forum. He has been a visiting scholar at HIID and an Adjunct Professor at Brandeis University, where he has taught at the Graduate School of International Economics and Finance. Before joining the World Economic Forum, he served as head of international economic research at Deutsche Bank. Prior to this appointment, he was a senior economist of the International Monetary Fund and a staff economist of the German Council of Economic Experts. He also served as a consultant to UNIDO and the EU. He studied economics at the London School of Economics and Political Science and the University of Göttingen where he received a doctorate degree.