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Developing nations pivot from US dollar debt amid high interest rates

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Emerging nations are shifting away from US dollar debt, turning to currencies with very low interest rates, such as the renminbi and the Swiss franc.

This shift, initiated by debtor nations such as Kenya, Sri Lanka, and Panama, reflects a reaction to the high interest rates set by the US Federal Reserve (Fed). These rates, in addition to angering President Donald Trump, have also increased the debt servicing costs for other countries.

Armando Armenta, vice president of global economic research at AllianceBernstein, told the Financial Times (FT), “High interest rates and a steep US Treasury yield curve… have made US dollar financing more burdensome for developing countries, despite the relatively low margins on emerging market debt. Consequently, these countries are seeking more cost-effective options.”

However, Armenta described the move to cheaper, non-dollar financing as “temporary measures” taken by countries that “must focus on reducing their financing needs.”

The switch to renminbi-denominated borrowing, with the Chinese currency reaching its highest level against the dollar this year, can also be seen as a consequence of Beijing’s $1.3 trillion Belt and Road development program.

Under this program, hundreds of billions of dollars in loans have been extended to foreign governments for infrastructure projects. Although the total figures for new renminbi loans are not widely known because Beijing negotiates them bilaterally with other governments, Kenya and Sri Lanka are seeking to convert high-profile dollar loans into this currency.

Kenya’s treasury announced in August that it was in talks with China ExIm Bank, the country’s largest creditor, to convert the repayment of dollar loans for a $5 billion railway project, which is straining its budget, into renminbi.

The president of Sri Lanka also told parliament last month that his government is seeking loans in renminbi to complete a major highway project that was halted when the country defaulted in 2022.

With the US federal funds rate between 4.25% and 4.5%—much higher than equivalent rates set by other major central banks—the total cost of new dollar-denominated borrowing is relatively high for many developing countries.

The Swiss National Bank lowered its interest rates to zero in June, while China’s benchmark seven-day reverse repo rate is 1.4%.

“The cost of financing appears to be the reason for the conversion to renminbi,” said Thilina Panduwawala, an economist at Colombo-based Frontier Research.

In the 2010s, many “Belt and Road” loans were issued in US dollars at a time when US interest rates were much lower. Since then, the cost of such debt for Kenya and Sri Lanka has increased significantly, accelerating the trend away from dollar financing.

By borrowing in currencies like the renminbi and the Swiss franc, countries can secure loans at much lower interest rates than those offered by dollar bonds.

However, Yufan Huang from the Johns Hopkins University China-Africa Research Initiative argued that Beijing’s broader efforts to promote lending in its currency have made limited progress.

“Although renminbi interest rates are lower, many borrowers are still hesitant. For now, it seems to be more of a case-by-case practice, as in the example of Kenya,” Huang said.

Since governments rarely earn export revenue in currencies like the renminbi and the Swiss franc, they may also need to hedge their exposure to foreign exchange rates through derivatives.

As the Panamanian government struggles to control its fiscal deficit and prevent its credit rating from falling to junk status, it took out nearly $2.4 billion in Swiss franc loans from banks in July alone.

Panama’s Finance Minister, Felipe Chapman, said that accessing cheaper financing saved over $200 million compared to issuing dollar-denominated debt and that the new loans were hedged.

The minister added that the country is “diversifying” its public debt management into both the euro and the Swiss franc, “instead of relying solely on American dollar capital markets.”

Colombia also appears to be turning to Swiss franc loans to refinance its dollar bonds. Last week, a group of global banks launched an offer to buy discounted Colombian bonds, which investors see as part of arranging a Swiss franc loan to the government that would use the existing debt as collateral.

Although Bogotá has not yet approved such a loan, the country’s finance ministry announced plans in June to diversify its foreign currency borrowing.

Andres Pardo, head of Latin America macro strategy at XP Investments, said that by borrowing at low Swiss interest rates of around 1.5%, Colombia could buy back dollar debt yielding 7% to 8% and local peso bonds yielding up to 12%.

The country’s local currency debt was downgraded to junk status by S&P that month after the government suspended a key fiscal rule.

Investors noted that while government borrowing in Swiss francs could help limit interest expenses, in the long run, such borrowing cannot replace access to the larger public market for dollar-denominated bonds.

“These help with fundamentals if you want to fix your maturity profile… but we need to see policymakers make improvements to reopen the [dollar] markets to them,” said one emerging market debt fund manager.

According to JPMorgan, companies in emerging markets are also selling more euro-denominated bonds this year, with the amount of this debt reaching a record $239 billion as of July.

The total value of dollar-denominated corporate bonds in emerging markets is approximately $2.5 trillion.

“This year’s euro-denominated issuances are growing more than dollar-denominated ones,” said Toke Hjortshøj, a portfolio manager at Impax Asset Management.

The manager added that issuers in Asia account for one-third of euro-denominated issuances, up from 10% to 15% fifteen years ago.

Diplomacy

South Korea pulls part of embassy staff from Ukraine amid POW dispute

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The South Korean government has decided to withdraw part of its embassy staff from Ukraine.

According to the Yonhap news agency, Foreign Ministry spokesman Park Doo-sun cited the Kyiv administration’s failure to take “positive steps” in the dispute that began with the leak of information concerning the handover of North Korean prisoners of war as the justification for the move.

The spokesman also listed the ongoing threat of air strikes, which complicates the safety of diplomats, among the reasons.

Following the withdrawal of part of the personnel, essential diplomatic contacts will continue under the leadership of the charge d’affaires ad interim to Ukraine. All consular staff tasked with protecting South Korean citizens will remain in Ukraine.

Prior to this move, the Seoul administration decided on 8 October to withdraw its ambassador. The Foreign Ministry stated at the time that it was ready to continue consultations with Kyiv to resolve the emerging issues constructively.

Tensions between the two countries began with a speech delivered by Ukrainian President Volodymyr Zelenskyy at the United Nations General Assembly in September.

Zelenskyy announced that two captured soldiers from the North Korean army had been handed over to South Korea.

South Korean President Lee Jae-myung, meanwhile, accused Kyiv of breaching a confidentiality agreement.

Lee said the disclosure of this information endangered the prisoners’ families and stability on the Korean Peninsula.

Seoul expects a public apology

Dmytro Lytvyn, an adviser to the Ukrainian president, denied the existence of a confidentiality agreement.

The South Korean Foreign Ministry summoned Ukrainian Charge d’Affaires Andriy Veshkin on 28 September and issued a note of protest against Lytvyn’s remarks.

President Lee Jae-myung warned in a statement on 2 October that they would take additional measures against Kyiv if Ukrainian authorities did not acknowledge the agreement and make a public apology. Lee stated that Ukraine itself had initially requested that the transfer of the prisoners be kept confidential.

Ukrainian Foreign Ministry spokesman Heorhii Tykhyi said the dispute stemmed from differing interpretations of the confidentiality regime.

Tykhyi noted that Seoul, based on its constitution which recognises the entire Korean Peninsula as its own territory, requested that the prisoners be handed over “like its own citizens”.

Describing the handover as a “gesture of goodwill”, Tykhyi stated that they were conducting closed-door negotiations to resolve differences of opinion.

Ambassador Park Ki-chang returned to Seoul on 10 October. According to a report by The Korea Times newspaper citing the ministry, recalling the ambassador served as a diplomatic protest against the leak of information regarding the prisoners.

The newspaper wrote that South Korea had last taken a similar step in 2008 by withdrawing its ambassador to Japan.

Moscow warned foreign diplomats

On 3 October, the Russian Foreign Ministry reiterated its warning to foreign nationals, including diplomatic mission staff, against remaining in Ukraine.

The ministry recalled its advice to leave Kyiv, citing ongoing strikes against military targets.

The ministry noted that those who failed to heed the warnings would bear responsibility for the potential consequences.

Kremlin spokesman Dmitry Peskov said in a statement on 24 September that they had no information regarding Kyiv handing over two North Korean prisoners of war to Seoul.

Peskov, noting that prisoner matters fall under the authority of the Defence Ministry and intelligence services, said, “Contacts through the special services are continuing.”

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Ex-BND head Hanning tied to former Mossad chief amid spy inquiry

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August Hanning, who led Germany’s Federal Intelligence Service (BND) between 1998 and 2005, was arrested on 6 October on allegations that he obtained roughly 2,000 classified agency documents and used them during contacts with intelligence officers from a foreign state.

Accused of high treason and espionage on behalf of a foreign intelligence agency, the former spy chief is alleged to have procured the documents from former BND employee Manfred D.

Prosecutors stated that the leaked records included internal briefing notes presented to senior German officials, though the Berlin government has not yet publicly disclosed which country received the classified data.

According to an exclusive report by Jake Green for The Cradle, seized email exchanges revealed extensive ties between the arrested Hanning and former Mossad director Danny Yatom.

The correspondence shows that the two former intelligence directors built an ongoing network of contacts following their public service, combining commercial ventures, efforts to secure political influence, and intelligence links.

This dynamic has triggered debate that using personal connections and official access for private gain has left Germany’s intelligence apparatus vulnerable.

Intelligence notes for 10,000 euros and campaign proposals

According to the reviewed emails, Hanning told Yatom in a 2018 message that he could prepare an “overall assessment based on information obtained from senior German officials and intelligence agencies” concerning an unidentified candidate.

The former BND head committed to completing the report by 13 July in exchange for 10,000 euros.

Contacts between the two men subsequently expanded to cover domestic political processes in Germany. Ahead of the September 2021 federal election, Yatom asked Hanning to approach leading candidates.

Describing CIY Global as a “political campaign company”, the former Mossad chief noted that he aimed to introduce its capabilities to German politicians, and he mentioned his intention in the same exchange to transfer documents concerning a cybersecurity firm.

Cybersecurity partnership and surveillance operations across Europe

The partnership between Yatom and Hanning reached beyond political lobbying initiatives into the cybersecurity sector.

Hanning reportedly served as a consultant for World Health Energy Holdings, a cybersecurity company linked to Yatom.

Firms of this type, established or managed by former intelligence personnel, provide commercial platforms on the international market for Israeli-origin surveillance, cyber intelligence, and political influence capabilities.

The operational presence of private Israeli-based surveillance technologies across Europe has recently entered judicial records through scandals in Poland, Spain, and Greece.

Polish prosecutors announced on 12 October that data collected under the previous government via Pegasus spyware against political opponents had been transferred out of the country, adding that manufacturer NSO Group maintained access to the technical infrastructure.

In Spain, the 2022 CatalanGate investigation established that at least 65 people, including politicians, lawyers, and civil society representatives, were targeted using Pegasus or Candiru software, with Citizen Lab researchers publishing strong evidence linking the operation to Spanish authorities.

In Greece, the surveillance operation targeting journalist Thanasis Koukakis and Member of the European Parliament Nikos Androulakis was determined to have used Predator software, linked to Intellexa, a company founded by former Israeli intelligence officer Tal Dilian.

In the German espionage investigation, the traffic between Hanning and Yatom involving paid reporting, contacts with electoral candidates, and commercial partnerships does not yet provide conclusive legal evidence regarding the final destination of the roughly 2,000 classified documents.

Nevertheless, the disclosed correspondence gives German investigators a concrete line of inquiry to assess whether classified state secrets reached commercial networks tied to Israeli intelligence.

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Trump dismisses US envoy to Greece Kimberly Guilfoyle

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US President Donald Trump has dismissed Kimberly Guilfoyle, the US ambassador in Athens, following serious press reports concerning her conduct.

White House Press Secretary Katie Zacharia told reporters during her first briefing that Guilfoyle had been asked to resign.

“She was doing a good job, but we didn’t like what we read in the press,” Trump said. “She was not a member of my family. I think she dated my son a long time ago.”

In a social media post, Guilfoyle stated: “These claims are unfounded, and I will resolutely defend my name, reputation, and integrity.” She added that she was particularly proud of the embassy’s work.

According to Kathimerini, her removal came as no surprise in Washington. Days of successive disclosures and vigorous exploitation of the matter by Democrats had been inflicting political damage on the White House ahead of the sensitive midterm elections.

The US State Department was instructed not to comment, with crisis management transferred entirely to the White House.

Reports indicate that most of the president’s team swiftly favoured Guilfoyle’s dismissal, while Secretary of State Marco Rubio was reportedly uneasy with the demonstratively warm public welcome she had staged for him.

Democrats on the House Foreign Affairs Committee have called for an investigation.

“Her resignation does not absolve her of responsibility,” the lawmakers wrote, adding: “While American families struggled to make ends meet, she used her position as a Trump administration official to enrich herself.”

Chargé d’Affaires Josh Huck will assume ambassadorial duties until a successor is chosen.

Meanwhile, Guilfoyle’s departure is expected to cause delays in agreements between Greece and the US.

These include the so-called “Rubio package”, comprising approximately $4 billion in arms deals finalised only days before the secretary of state’s arrival.

Several procedural steps still remain before the contracts can be signed.

In Athens, opposition parties are demanding answers. Dimitris Mantzos of PASOK called for a detailed briefing on the agreements reached during Rubio’s visit.

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