Financing Developing Country Debt: A Sovereign Borrowing Entity Proposal
- 1 College of Business, Administration, California State University, Sacramento, USA
- 2 School of Business, Austin Peay State University, Clarksville, USA
- 3 Department of Finance, University of Tennessee, Knoxville, USA
Abstract
This paper proposes the creation of a Sovereign Borrowing Entity (SBE) under the auspices of the International Monetary Fund (IMF) and other International Financial Institutions (IFIs). The SBE guarantees bond issuances by developing nations, packages them in relatively small denominations, and auctions them to the public. Should a developing debtor country fail to pay its debt, the SBE would raise funds through a punitive tariff on all exports administered by the IMF member nations. We develop a theoretical model of the proposed Sovereign Borrowing Entity (SBE) and provide viability evidence using export and debt data from the World Bank. It is our hope that this paper will encourage further dialogue and research on financing developing country debt in a more effective manner.
- Bulow, J. (2002). First World Governments and Third World Debt. Brookings Papers on Economic Activity, 1, 229-255. http://dx.doi.org/10.1353/eca.2002.0004
- Bulow, J., & Rogoff, K. (1989). Sovereign Debt: Is to Forgive to Forget? The American Economic Review, 79, 43-50.
- Bulow, J., & Rogoff, K. (1990). Cleaning up Third World Debt without Getting Taken to the Cleaners. The Journal of Economic Perspectives, 4, 31-42. http://dx.doi.org/10.1257/jep.4.1.31
- Cohen, D. (1991). Private Lending to Sovereign States: A Theoretical Autopsy. Cambridge, MA: MIT Press.
- Dailami, M., Masson, P. R., & Padou, J. J. (2008). Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads. Journal of International Money and Finance, 27, 1325-1336. http://dx.doi.org/10.1016/j.jimonfin.2008.07.003
- Dell’Ariccia, G., Schnabel, I., & Zettelmeyer, J. (2006). How Do Official Bailouts Affect the Risk of Investing in Emerging Markets? Journal of Money, Credit and Banking, 38, 1689-1714. http://dx.doi.org/10.1353/mcb.2006.0091
- Eaton, J., & Gersovitz, M. (1981). Debt with Potential Repudiation: Theoretical and Empirical Analysis. The Review of Economic Studies, 48, 289-309. http://dx.doi.org/10.2307/2296886
- Johnson, D. M. (1992). Professionalism in the Third World. Internal Auditor, 49, 51.
- Kaletsky, A. (1985). The Costs of Default. East Longmeadow, MA: Priority Press.
- Kamin, S. B. (2004). Identifying the Role of Moral Hazard in International Financial Markets. International Finance, 7, 25-59. http://dx.doi.org/10.1111/j.1367-0271.2004.00128.x
- Reich, R. B. (2010). Aftershock: The Next Economy and America’s Future. New York: Random House LLC.
- Rogoff, K. (1999). International Institutions for Reducing Global Financial Instability. The Journal of Economic Perspectives, 13, 21-42. http://dx.doi.org/10.1257/jep.13.4.21
- Rogoff, K., & Zettelmeyer, J. (2002). Bankruptcy Procedures for Sovereigns: A History of Ideas, 1976-2001. IMF Staff Papers, 470-507.
- Rose, A. K. (2005). One Reason Countries Pay Their Debts: Renegotiation and International Trade. Journal of Development Economics, 77, 189-206. http://dx.doi.org/10.1016/j.jdeveco.2004.03.006
- Rose, A. K., & Spiegel, M. M. (2004). A Gravity Model of Sovereign Lending: Trade, Default, and Credit. IMF Staff Papers, 50-63.