The past year has been the most dif? cult period for emerging market (EM) borrowers since the establishment of the Principles in 2004. Cross-border ? nancing ? ows have been disrupted by the global ? nancial crisis, while emerging markets’ export earnings— especially from commodities, but also from other goods and services—have plummeted in the deep worldwide recession. Strains were already emerging by late 2007, but ? nancing conditions worsened dramatically in the fourth quarter of 2008, when the slowing of capital in? ows from private creditors was transformed almost overnight into a generalized aversion toward assets with any perceived risk— including claims on emerging markets.

Risk aversion was increased sharply by developments in mature markets, notably the disorderly failure of Lehman Brothers, which was followed by forced merger or government recapitalization of several other large institutions, after losses on sub-prime mortgages and structured products. For emerging markets, the consequence was a shift from in? ows of private capital averaging over $400 billion a year in 2006–07, to a signi? cant net out? ow between September 2008 and March 2009.