The IMF established the SDDS in 1996 to help its member countries provide timely and reliable economic and financial data to the public and markets (see box below). The request to establish a statistical standard came from the Group of Seven (G7) countries, which were reacting to the debt crisis in Mexico, Cady said. "The idea was that more transparency in the area of economic and financial statistics could help avert similar crises in the future." Because of the crisis in Mexico, the initiative was originally aimed at emerging market countries wanting to tap international capital markets. So far, 57 countries have subscribed to the standard. A significant number are emerging market countries, but the list also includes many industrial countries.
The steady flow of economic and financial data can make a big difference to countries seeking to reduce their borrowing costs and make more room for spending on development. According to Cady, "the provision of statistics allows the public as well as the markets to formulate their own opinions about a country's economic policies."
For the more statistically advanced countries, markets generally conduct their own economic analysis. But forecasting how specific policies will affect a country's economic outlook becomes more difficult when reliable and timely statistics are in short supply. These problems are often compounded by a challenging economic environment. For example, inflation makes projection very difficult, which, in turn, affects investment plans and other economic decisions. "The more transparent a country is in terms of the current situation and its economic policies, the more concrete the private sector can be about its investment decisions. Page 173
Cady focused his research on the issuance of debt in primary markets, something that sets his study apart from other recent studies on the impact of the SDDS. Countries issue bonds (usually denominated in dollars, euros, or yen) in the primary market, whereas bonds that have already been issued trade in the secondary market. This distinction is important because it identifies who reaps the benefit from the SDDS discount, Cady explained. If the yield on a country's bonds declines in the secondary market, the country itself...