Here is a definition of government bond. Government bond is ‘a debt security issued by a government to support government spending, most often issued in the country’s domestic currency.’ So at the end of the day, bond is still debt. It is money owed by any level of government that is backed by the full faith of the state! Whichever government issued bonds or incurred debts, it is ultimately the nation-state (as an entity) that remains liable! Another important thing to notice about bond issuance in a highly financialized world is; semi-peripheral states/governments with non-convertible currencies (in the global open market) are also allowed to issue bonds to raise funds in other currencies. Of course at their own risks!
Participating in the international bond market, particularly by not so sophisticated upstarts, can be full of undesirable surprises. Reasons abound and obviously we cannot cover them all! Suffice is to mention the obvious risks. When a government with a non-convertible currency, say for example the Ethiopian government, issues bond in other currencies, usually outside of the country’s jurisdiction, it is automatically exposed to all kinds of risks, some not entirely economic or legal. The recent move to curtail the Russian government & its SOEs (state owned enterprises) from raising funds in the West is a case in point (example, Gazprom, the Russian oil giant). Fluctuations in exchange, interest, inflation or even GDP rates can easily complicate international bond issuance/redemption, to say nothing about other salient risks that are classified under the rubric, ‘country risk.’ No matter what, bonds that are issued in other currencies must be redeemed according to stipulated conditions. But this is easily said than done. Believe you us, the salient features of the various conditions associated with bond floatation are way beyond the grasp of many a lawyer, local or otherwise. As one Carl Richards aptly put it: ‘risk is what is left over when you think you have thought everything.’ Caveat emptor! Don’t forget the globally operating highly sophisticated financial institutions (used to be called investment banks), which are the primary/secondary sellers of such bonds, also have their own clear objective; maximizing profits. To this end, they will engage in all sorts of shady and very opaque maneuvering.
There are many critical factors that make the issuance of bond a success, but that is not enough. Long-term consequences must be thoroughly weighted, lest a country falls into a quagmire of perpetual debt owed to foreign privates, which can easily foreclose a country’s (relative) ‘independent future’! When a government sells its bonds locally, mostly to banks, pension funds, insurance companies, etc. denominated in local currency, its risks are manageable. The Ethiopian government, like many other governments, (small or big) has been selling such bonds for decades. In this situation, even when things get dicey, government can still fulfill its obligation (redeem its bonds). For instance government can always raise taxes or concoct additional revenues. If and when all such options fail, it can always resort to drastic measures, like printing money. The issuance of Ethiopian government bonds denominated in other (international) currencies is a different animal all together! In this regard, there are plenty of instructive examples to learn from. We believe, any non-core country toying with this dangerous game must be really, really up to it. It doesn’t help to cry foul once the vultures of the global capital market are done with us! Globalized finance, under the overarching economic regime of financialized globalization, is quite dangerous and should be handled with the utmost caution!
Critical analysts, not paid apologists, insist; flirtations in the very womb of the viciously stooped international capital market (bond market, etc.), by naïve weak states is quite audacious, whatever the reasons behind the exercise! If it is to raise absolutely needed fund, then it must be recognized as a sort of Faustian pact! But if it is mere vanity, to profess our ‘arrival’, (in the sense of the country has finally joined ‘a particular league’), we suggest a potent and confidence enhancing Chinese antidote; ‘hide brilliance and cherish obscurity.’
Ethiopia must tirelessly work to better its overall existence (inside/outside) and not be infatuated with phony adulations spewed by paid manipulators intended to entrap it. Trying to impress vacuously is just plain stupid. Image has to be backed by substance otherwise it will be the same old holywoodesque claptrap (shall we say, craptrap) that will take us nowhere! This reminds us of an old Ethiopian saying: “They tricked the chicken by felling it with a horse’s rein! Good Day!