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Taking stock of risk management techniques for sovereigns

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  • Claessens, Stijn

Abstract

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.

Suggested Citation

  • Claessens, Stijn, 2005. "Taking stock of risk management techniques for sovereigns," Policy Research Working Paper Series 3570, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3570
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    References listed on IDEAS

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    1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
    2. Christopher L. Gilbert & Alexandra Tabova, 2004. "Commodity prices and debt sustainability," Department of Economics Working Papers 0404, Department of Economics, University of Trento, Italia.
    3. Brian D. Wright & Kenneth M. Kletzer, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June.
    4. Kletzer, Ken & Newbery, David M & Wright, Brian D, 1992. "Smoothing Primary Exporters' Price Risks: Bonds, Futures, Options and Insurance," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 641-671, October.
    5. 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.
    6. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    7. Pierre-Richard Agénor, 2004. "Macroeconomic Adjustment and the Poor: Analytical Issues and Cross-Country Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 18, pages 351-408, July.
    8. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-4.
    9. 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.
    10. Eduardo Borensztein & Paolo Mauro, 2004. "The case for GDP-indexed bonds," Economic Policy, CEPR;CES;MSH, vol. 19(38), pages 165-216, April.
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    Cited by:

    1. Martin Melecky, 2012. "Choosing The Currency Structure Of Foreign‐Currency Debt: A Review Of Policy Approaches," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(2), pages 133-151, March.

    More about this item

    Keywords

    Environmental Economics&Policies; Banks&Banking Reform; Insurance&Risk Mitigation; Non Bank Financial Institutions; Financial Intermediation;

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