(preliminary draft; please do not quote) This paper studies the current state and drivers of government local currency bond markets (LCBMs) in Sub-Saharan Africa, a region whose progress in developing such markets has only recently received attention in the literature. We argue that well-developed LCBMs could reduce countries ’ exposure to external shocks; help wash away ‘original sin’; facilitate the mobilisation of domestic savings; and may have important financial, macroeconomic and institutional spill-over effects. With information collected from various sources the paper first shows that quite a number of African countries have made significant strides in this area. Increasingly, governments in the region issue fixed-rate local currency bonds with tenors of ten years and more on a regular basis. This does not imply all is well; African LCBMs often lack liquidity, feature few corporate securities and generally have narrow investor bases dominated by commercial banks. Second, an econometric analysis of new OECD panel data on government LCBM capitalisation in selected African countries suggests it is positively related with higher past fiscal deficits, lower inflation, better institutional quality and democracy.

We develop and test an integrated theoretical framework for understanding how two forms of rivalry –one related to electoral politics firms observe and the other related to market competition in which these same firms participate — shape risk assessments by firms active in developing countries (“DCs”). Political business cycle (“PBC”) theory suggests that incumbent politicians, particularly incumbent politicians with a left-wing orientation, have incentives to implement expansionary economic policies during election years even if such policies impair sovereign government finances and creditworthiness afterwards. Electoral rivalry and the PBC-related economic policies it prompts increases risk to firms, but strategy research suggests that this increase will be moderated due to rivalry among firms in the same DC market segment. We test hypotheses derived from this integrative theoretical framework with a sample of 458 ratings of sovereign government creditworthiness published by five major credit rating agencies for 18 DCs holding 35 presidential elections from 1987-2000. We find that: 1) agency ratings decrease during election years in DCs with left-wing incumbents; but 2) this electoral rivalry effect on risk diminishes as the number of agencies vying for DC rating business increases. Market rivalry among agencies and, perhaps, other firms

Optimum Currency Area (OCA) theory prove inadequate in the analysis of the new regional monetary integration schemes that have sprung up among developing and emerging market economies since the 1990s. Building on the concept of ‘original sin ’ developed by Eichengreen et al. we argue that a different conceptual framework is needed as these re-gional monetary South-South integration schemes fundamentally differ from North-South arrangements as it involves none of the international reserve currencies. Insights from the cases of monetary South-South co-operation in Southern Africa, East Asia and Latin America suggest that SSI can have beneficial effects for macroeconomic stability. This paper sketches a first set of hypotheses on the necessary conditions for these stability gains to materialise.

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Optimum Currency Area (OCA) theory proves inadequate in the analy-sis of the new regional monetary integration schemes that have sprung up among developing and emerging market economies since the 1990s. Building on the concept of ‘original sin ’ developed by Eichengreen et al. we argue that a different conceptual framework is needed as these re-gional monetary South-South integration (SSI) schemes differ funda-mentally from North-South arrangements because they involve none of the international reserve currencies. Insights from the cases of monetary south-south cooperation in Southern Africa, East Asia and Latin Amer-ica suggest that SSI can have beneficial effects on macroeconomic sta-bility. This paper sketches a first set of hypotheses on the necessary con-ditions for these stability gains to materialise.