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

Daniel Cohen, Hélène Djoufelkit - Cottenet, Pierre Jacquet and Cécile Valadier

No 269, OECD Development Centre Working Papers from OECD, Development Centre

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.

Keywords: Export Shocks; Low Income Countries; Soft Loan; Chocs d’Exportations; Pays Pauvres; Prêts Concessionnels (search for similar items in EconPapers)
JEL-codes: F21 F34 F35 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2008-04-03

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Persistent link: http://EconPapers.repec.org/RePEc:oec:devaaa:269-en

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