Technical Notes

Effects of Foreign-Currency Debt on Non-Financial Latin American Firms: Evidence from the 2000s

PUBLISHED: December 2016


This paper empirically tests the effects of foreign currency debt on economic performance and investment behavior in non-financial firms in six Latin America and Caribbean countries. It is found find that domestic-currency depreciations may surprisingly increase the exchange-rate induced profits of particularly highly foreign currency-indebted firms (especially those that are foreign owned and others with foreign links). Such depreciations have only a mild correlation with gross profits. Foreign-currency debt seems to have ambiguous effects on fixed investment purchases behavior, possibly attributable to non-financial firms’ behavior as financial intermediaries. This effect tends to vanish when financial derivatives are considered.

Related Research by JEL Codes:
(or click here to find research by JEL Codes)
  • Latin American and Caribbean Macroeconomic Report Routes to Growth in a New Trade World
    Annual Report
    IDB-AR-141 - March 2017

    The 2017 Macroreport considers recent developments in the global economy and how they may affect Latin America and the Caribbean. It reviews how countries are adapting to external conditions and how those policies may be improved. This year, the report focuses particularly on deeper and smarter regional integration as an attractive route to boost productivity and growth. (View publication)

  • Multinationals Stockpiling Cash: Exploring a Commodity Boom
    Working Papers
    IDB-WP-580 - July 2015

    This paper explores how affiliates of multinational corporations save liquidity when facing a transitory cash-flow shock. For this a panel is first built of non-publicly traded copper mines in South America between 2001 and 2012, most of them set up as Foreign Direct Investment (FDI). This industry offers a peculiar advantage as a laboratory for social science when exploring cash-flow sensitiv ... (View publication)

  • Is the Eurozone on the Mend? Latin American Examples to Analyze the Euro Question
    Working Papers
    IDB-WP-525 - July 2014

    Several European countries face challenges reminiscent of those faced by the emerging economies of Latin America. The economic booms in some peripheral Euro-zone countries financed by large capital inflows; the credit and asset price booms and then the busts including Sudden Stops in capital flows; the strong interaction between sovereign debt and domestic banking systems; the role of foreign ... (View publication)

Hello, Welcome to the IDB!

Please join our mailing list by simply entering your email below.