Growth-indexed Bonds Advantages Avoid defaults and collateral damage Avoid defaults and collateral damage Avoid pro-cyclical fiscal policy Avoid pro-cyclical.

Slides:

Advertisements

Similar presentations

Center for Emerging Market Enterprises

Advertisements

Some (unexplored) effects of China on Latin America Eduardo Lora China and India: Whats in it for Africa OECD Development Center Paris, March 17, 2006.

1980’s debt crisis In the aftermath of the 1973 oil shock, many commercial banks suddenly found themselves with sizeable amounts of funds deposited by.

October 29,  Fiscal Risks identified and quantified in Mexico: ◦ Budgetary impact of fluctuations in key assumed macro-economic variables ◦ Long-term.

How Brady worked and why London, ISA-CAF, 20 Feb 2012 Professor Stephany Griffith-Jones Financial Markets Program Director at the Initiative for Policy.

SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND Small economies and financial crisis Horwath Nordic Pentti Hakkarainen Deputy Governor Bank.

Financial Sector in Bulgaria. Bulgaria - Currency Board Arrangement  BGN1 = DEM1 = EUR  Long-term goal for EU membership, the anchor currency.

BEYOND LENDING: MDB’S FINANCIAL ROLE AFTER THE CRISIS Guillermo Perry Center for Global Development Innovative Financial Solutions for Development AFD,

SOVEREIGN BANKRUPTCY. Goals of Bankruptcy Regimes Ex-post efficiency: once bankruptcy is triggered –Maximize total value –Ensure growth: clean slate Ex-ante.

BRAZIL : Latest Developments in Public Debt Management

Financial Dedollarization: Policy Options Eduardo Fernandez-Arias Inter-American Development Bank REGION I.

Mexican Financial Markets. Mexico’s Economic: Highlights GDP: $621 B GDP: $621 B  Largest in Latin America  12 th largest of the World 8 th Largest.

IMF mission in Ukraine: problems and prospects Shyposha Katerina.

Mereseini Q. Waibuta Ministry of Finance (Fiji) 10 March, 2014 In Seoul, Korea Ministry of Finance PRESENTATION AT THE PLENARY SESSION DEVELOPMENT COOPERATION.

Debt, dollars and the IFIs Eduardo Levy-Yeyati 1 Dollar, Debts and the IFIs: Dedollarizing Multilateral Credit Eduardo Levy-Yeyati Business School Universidad.

Macroeconomic Snapshot – Serbia DPA / VBT Visit 30th May Hotel Moskva, Belgrade.

Eric Johnson.  The Euro: A Summary  History Lesson  Sovereign Debt Crisis  Future of the Euro  Q & A.

Ministry of Economy December, 1999 Argentina Financial Program Year 2000.

International Fixed Income Topic VA: Emerging Markets-Brady Bonds.

Latin American Crisis of the 1980s “The Lost Decade” Econ. 462 Nov. 24, 2009 Edward Kulow John Magallanes Yojasi Lomas.

C A U S E S International factors: -Increased Access to Capital at Low Interest Rates -Heavily borrow -Access to artificially cheap credit -Global finance.

Brady Bonds Jose A. Boza David Marquez Elton Festari Rahul Bakshi.

Jelena Matovic Predrag Popovic Spencer Parrish Brady Bonds (2004)

Argentina March 2006 Maria Muniagurria. Argentina Some History Rich Natural Resources High Human Capital Reasonable Infrastructure Great Performer in.

CORPORATE FINANCIAL THEORY Lecture 8. Corp Financial Theory Topics Covered: * Capital Budgeting (investing) * Financing (borrowing) Today: Revisit Financing.

Brady Bonds Pallavi Rao Morris Chen. Brady Bonds Buy Mexican par or discount bonds Buy Mexican par or discount bonds Buy Venezuela par or discount bonds.

Austerity in the Eurozone: It’s Not Working Mark Weisbrot Center for Economic and Policy Research

ASEAN Beyond the Crisis: Prospects and Challenges of Recovery Aladdin D. Rillo Head, Finance Integration Division The ASEAN Secretariat Regional Conference.

1 Financial Crisis (addendum) Savings and Loan Crisis (the S&L Crisis) Deposit insurance creates moral hazard Relaxed regulation permitted.

1 Financial Dedollarization: Policy Options Comments Mauricio Cárdenas Washington, D.C. December 2, 2003.

Introduction to the Financial System. In this section, you will learn:  about securities, such as stocks and bonds  the economic functions of financial.

© RAINER MAURER, Pforzheim Prof. Dr. Rainer Maure Digression: The European Debt Crisis 2010.

The Global Economy European Monetary Union. European Union Emerged from post-WWII Europe –ECSC meant to end wars between France and Germany Evolved into.

Governments, Moral Hazards, and Financial Crises Franklin Allen Wharton School University of Pennsylvania Norges Bank Conference September 1-2, 2010.

Maintaining Growth in an Uncertain World Regional Economic Outlook for Sub-Saharan Africa African Department International Monetary Fund November 13, 2012.

Macroeconomic Environment and Policies After Crisis In Armenia Ministry of Finance Deputy Minister Vardan Aramyan October 6, 2011.

Bond Markets in Latin America: Comments on Recent Proposals Alejandro Werner April, 2003.

Perú: Recent Economic Developments and Perspectives Central Reserve Bank of Peru October 2002.

© 2004 Pearson Addison-Wesley. All rights reserved 1-1 ECON 304 Money and Banking Instructor: Bernard Malamud –Office: BEH 502 Phone (702) 895 –3294 Fax:

A BROAD VIEW OF MACROECONOMIC STABILITY JOSÉ ANTONIO OCAMPO UNDER-SECRETARY-GENERAL UNITED NATIONS.

COUNTRY RISK ANALYSIS The concept evolved in 1960s and 1970s in response to the banking sector's efforts to define and measure its loss exposure in cross-border.

Addressing the Downturn in LAC: Policy Analysis Guillermo Calvo Columbia University XXIX Meeting of the Latin American Network of Central Banks and Finance.

Ephraim CLARK, MODELLING AND MEASURING SOVEREIGN CREDIT RISK by Professor Ephraim Clark.

An Overview of Personal Finance The Importance of Personal Finance –Slow Growth in Personal Income The average annual growth rate in the US is from 2 -

Bond Markets in Latin America: On the Verge of a Big Bang? Eduardo Borensztein IMF Santiago de Chile, April 2007.

1 How to avoid another serious financial crisis: Harnessing the benefits of financial integration Manfred Schepers, Vice President Finance, EBRD.

Growth-indexed Bonds Advantages Help avoid defaults and collateral damage Help avoid defaults and collateral damage Avoid pro-cyclical fiscal policy Avoid.

Banking Sector and Foreign Banks in Turkey Ekrem Keskin December 2008.

 Why do we have international financial crises? How do these crises influence economy and politics in each country?  AN ASSESSMENT OF THE IPE STRUCTURES.

1 Eduardo Levy Yeyati UTDT Business School & IDB Sovereign Debt in LAC.

1 INTOSAI Public Debt Working Group Mexico Meeting 2010 Impact of Financial Crises on Public Debt and INTOSAI Initiatives Jose Oyola, Ph.D., CPA Government.

Public Debt Management in Pakistan Debt Policy Coordination Office Ministry of Finance.

First Meeting of the IDB Euro-Latin Research Network Federico Sturzenegger Business School, Universidad Torcuato Di Tella Madrid, October 2002.

Global Development Finance 1999 Main Messages Global Economic Environment Main Messages n n Global output slowdown deeper than anticipated   Developing.

XXIII Asamblea Annual de ASSAL Round Table Discussion: Market Developments April 25, 2012 Andrea Keenan Assistant Vice President, Economic & Industry Research.

Chapter 1 Why Study Money, Banking, and Financial Markets?

McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Money and Banking Lecture 14.

Financing. Equity financing Debt financing Equity financing: owned Stocks: Claims on assets Part ownership Common stock Preferred stock.

IMF conference march 2011 Book august leading economists reassess Economic Policy.

Case Study: LDC Debt and Brady Bonds

NEW FINANCIAL ARCHITECTURE AND MACRO POLICY UNDER GLOBALIZATION HAZARD

A Fiscal Insurance Scheme for the Eastern Caribbean Currency Union

Why Study Financial Markets?

Monetary Policy in Peru

Andrea Keenan Assistant Vice President, Economic & Industry Research

FIN 350 Innovative Education-- snaptutorial.com

Case 6. LN XIII LDC Debt and Brady Bonds

Sovereign debt and multiple equilibria

Sovereign debt and multiple equilibria

Presentation transcript:

Growth-indexed Bonds Advantages Avoid defaults and collateral damage Avoid defaults and collateral damage Avoid pro-cyclical fiscal policy Avoid pro-cyclical fiscal policy Promote international risk sharing Promote international risk sharing Eduardo Borensztein IMF, April 2003

Growth-indexed Bond—An Example Consider a floating-rate bond with a coupon rate equal to: Consider a floating-rate bond with a coupon rate equal to: with a minimum of zero. Suppose that in 1990: r* = 7 percent r* = 7 percent g* = average growth rate of previous 20 years g* = average growth rate of previous 20 years 50 percent of government debt is growth-indexed 50 percent of government debt is growth-indexed Define Fiscal saving = reduction in annual interest payments thanks to the growth-indexed bonds

Mexico

Argentina

Issues/Nonissues Too risky? Too risky? Already exposed to GDP. Less default risk Already exposed to GDP. Less default risk Too complicated? Too complicated? Growth is well-understood and followed Growth is well-understood and followed Misreporting of GDP data Misreporting of GDP data Incentives not strong. Could be audited Incentives not strong. Could be audited Moral Hazard Moral Hazard Political resistance to “pay insurance” Political resistance to “pay insurance”

Precedents Brady Value Recovery Rights (VRRs) Brady Value Recovery Rights (VRRs) GDP VRRs (Costa Rica, Bulgaria, Bosnia) GDP VRRs (Costa Rica, Bulgaria, Bosnia) Ciudad de Buenos Aires Ciudad de Buenos Aires Options on US economic statistics (Longitude-DB-GS) Options on US economic statistics (Longitude-DB-GS) Inflation-indexed bonds Inflation-indexed bonds

Which Contingent Bond? Room for various liquid contingent bonds? Room for various liquid contingent bonds? Commodity-linked Commodity-linked Good proxy? Good proxy? Not under control of the sovereign Not under control of the sovereign More market base, except for long maturities More market base, except for long maturities Domestic Currency Domestic Currency Different but correlated—could provide similar degree of insurance Different but correlated—could provide similar degree of insurance Growth-indexed domestic-currency debt Growth-indexed domestic-currency debt Risks of capital controls, manipulation Risks of capital controls, manipulation

How Will It Happen? History evolves randomly, eg, Banks vs Bonds in sovereign finance, inflation- indexed bonds History evolves randomly, eg, Banks vs Bonds in sovereign finance, inflation- indexed bonds Externalities and coordination problems, official intervention Externalities and coordination problems, official intervention Debt Restructuring: time for innovation? Debt Restructuring: time for innovation? Role for IFIs? Role for IFIs?