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Taking stock of risk management techniques for sovereigns

  • Claessens, Stijn

The author reviews the current state of affairs and thinking on external risk management for developing countries. He tries to identify the reasons behind the limited risk management by sovereigns. Perverse incentives arising from a too generous international safety net, limited access to international financial markets by developing countries arising from low creditworthiness, a limited supply of financial risk management tools suited to developing countries, and a poor supply of skills have inhibited risk management. Another constraint has been the limited attention given to the strategic objectives for risk management. Going forward, the author identifies actions by international financial markets, countries, and international financial institutions that can help improve risk management. These actions include GDP-indexed loans and efforts to develop price and weather indexes.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3570.

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Date of creation: 01 Apr 2005
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Handle: RePEc:wbk:wbrwps:3570
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  1. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
  2. Kletzer, K.M. & Newbery, D.M., 1991. "Smoothing Primary Exporters' Price Risks: Bonds, Futures, Options and Insurance," Papers 647, Yale - Economic Growth Center.
  3. Bodie, Zvi & Merton, Robert C., 2002. "International pension swaps," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(01), pages 77-83, March.
  4. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  5. Kenneth M. Kletzer & Brian D. Wright, 2000. "Sovereign Debt as Intertemporal Barter," International Finance 0003004, EconWPA.
  6. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  7. Christopher L. Gilbert & Alexandra Tabova, 2004. "Commodity prices and debt sustainability," Department of Economics Working Papers 0404, Department of Economics, University of Trento, Italia.
  8. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  9. Agenor, Pierre-Richard, 2002. "Macroeconomic adjustment and the poor : analytical issues and cross-country evidence," Policy Research Working Paper Series 2788, The World Bank.
  10. Eduardo Borensztein & Paolo Mauro, 2004. "The case for GDP-indexed bonds," Economic Policy, CEPR;CES;MSH, vol. 19(38), pages 165-216, 04.
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