Sovereign economic transparency is the extent to which authorities provide timely, reliable and accessible information
relating to fiscal and monetary policies and the general economy.
In a recent research paper, Eaton Vance Management explores the relationship between Economic Transparency and Yield
Spreads, Credit Ratings, Stock Price Volatility and Trust in Government across 130 countries.
Marshall L. Stocker, Director of Country Research Portfolio Manager at Eaton Vance notes in the paper: “We find that
greater economic transparency correlates with lower sovereign Yield Spreads and better Credit Ratings. The empirical
results are compelling evidence to support our continued efforts to engage sovereign issuers and recommend greater
Economic Transparency.
“Conversely, we find that greater Economic Transparency does not correlate to greater volatility in a country’s capital
market, as measured by stock price volatility. The trust in Government that a nation’s citizens report is also not
correlated to Economic Transparency.
“Altogether, our research demonstrates that both investors and sovereigns benefit from improved Economic Transparency, a
“win-win” outcome for ESG engagement.”
The paper cites “Countries that have experienced financial stress frequently lacked the amount of publicly available
data that financially healthier nations readily provide. A reliable example is Argentina, which has defaulted nine times
since the county was founded in 1816.
“Over a year before Argentina’s 2014 default, the International Monetary Fund (IMF) (2013) censured the country for not
providing accurate data on inflation and economic growth.
“Yet, as early as Argentina’s first sovereign default in 1890, off-balance sheet government liabilities existed, which
contributed to the default. In that seminal default, the issuance of commercial bank bonds had been permissioned so long
as they were backed by government gold bonds. The financial innovation “constituted a new liability on the government’s
balance sheet” (Mitchener & Weidenmier, 2008), one which exceeded more than £30 million. As context, Argentina’s 1890 default was £48 million in
size.
“While a deterioration in the terms of trade and asset-liability duration mismatch were principal causes of the default,
Ford (1956) noted that “he [the investor] was grossly misled by the Argentine government which because of its difficult
budgetary position continued to borrow abroad merely to pay off existing service charges in the easiest immediate way”,
suggesting transparency issues beset Argentina since its first sovereign default. Recognizing the importance of economic
transparency, multilateral financial institutions, including the IMF and World Bank, have encouraged authorities to
increase their levels of transparency (International Monetary Fund, n.d.; The World Bank, 2020).
“This stems from the understanding that transparency allows for the public to monitor and hold the authorities
accountable (Cukierman, 2001). Further, this trend toward greater transparency can also be understood as “part of a
broader trend … to make government more responsive to the public” (Dincer & Eichengreen, 2014).”
Mr Stocker says: “ We have begun using the findings presented in this research as the basis of our engagement with
policymakers. We believe policymakers will be interested in knowing how to lower their borrowing costs and improve their
Credit Ratings by pursing greater Economic Transparency.”
For a copy of the research paper please contact simrita.virk@shedconnect.comAbout Eaton Vance
Eaton Vance provides advanced investment strategies and wealth management solutions to forward-thinking investors around
the world. Through principal investment affiliates Eaton Vance Management, Parametric, Atlanta Capital and Calvert, the
Company offers a diversity of investment approaches, encompassing bottom-up and top-down fundamental active management,
responsible investing, systematic investing and customized implementation of client-specified portfolio exposures. As of
31 October 2020, Eaton Vance had consolidated assets under management of $515.7 billion. Exemplary service, timely
innovation and attractive returns across market cycles have been hallmarks of Eaton Vance since 1924.