The forces shaping the revolution in banking and capital markets have radically changed
the financial landscape during the past three decades. A remarkable feature of this changing new
landscape has been the astonishing rate of internationalisation of the financial system in the last
two decades, with emerging markets becoming increasingly important participants. At times,
this participation led to an excessive reliance on foreign financing, making the participation of
these countries in the global financial system more vulnerable to shifts in expectations and
perceptions. The sovereign debt management strategy suffered from many structural
weaknesses, failing to take into account international best practices in financing budget deficits
and developing domestic government securities markets. Consequently, emerging markets
experienced serious financial crisis episodes. Against this background, the paper focuses on new
and more sophisticated strategies to develop domestic bond markets, taking into account the risk
profile, complexities and other constraints of emerging markets. The paper’s central thesis is that
risk-based public debt management and liquid domestic bond markets are important, mutually
reinforcing strategies for emerging financial markets to attain: i) enhanced financial stability, and
ii) a more successful participation in the global financial landscape. It will also be shown that this
twin-strategies approach requires taking a macroeconomic policy perspective.
