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Lending to the Poorest Countries: A New Counter-cyclical Debt Instrument

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Author Info
Daniel Cohen
Hélène Djoufelkit - Cottenet
Pierre Jacquet
Cécile Valadier ()

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Abstract

One of the particular features of poor countries’ economies is their volatility, due mostly to their dependence on commodities. The paper shows that this volatility is a prime factor behind the debt crises of the poorest countries. It advocates the adoption by donors of a new lending instrument: the countercyclical loan (CCL). The key idea is to reduce the grace period of a typical concessional loan, from 10 to 5 years, and to keep the remaining grace periods as an asset that the country can draw upon, when a bad shock occurs. If no such bad shocks happen, or infrequently enough, the “floating grace” is redeemed to the country at the end of the loan as a repayment in advance without penalties.
Une des caractéristiques des pays les plus pauvres est leur volatilité. Cet article montre que ce risque est l’un des facteurs essentiels qui explique les crises de dette de ces pays. A partir de ces résultats, l’article plaide en faveur de l’adoption par les bailleurs de fond d’un nouvel instrument de prêt : le prêt contra-cyclique (PCC). L’idée principale est de réduire la période de grâce d’un prêt concessionnel typique de 10 à 5 ans, et de garder les années de grâce restantes pour les utiliser en cas de mauvais choc. Si le pays ne subit aucun choc ou trop peu, cette « grâce flottante » est rendue au pays avant la fin du prêt, sous forme de remboursement anticipé sans pénalité.

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Paper provided by OECD Development Centre in its series OECD Development Centre Working Papers with number 269.

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Date of creation: 03 Apr 2008
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Handle: RePEc:oec:devaaa:269-en

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Related research
Keywords: Export Shocks Low Income Countries Soft Loan Chocs d’Exportations Pays Pauvres Prêts Concessionnels

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F35 - International Economics - - International Finance - - - Foreign Aid

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This page was last updated on 2008-11-16.

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