Innovative Financing for Development

Description

Developing countries need additional, cross-border capital channeled into their private sectors to generate employment and growth, reduce poverty, and meet the other Millennium Development Goals. Innovative financing mechanisms are necessary to make this happen. 'Innovative Financing for Development' is the first book on this subject that uses a market-based approach. It compiles pioneering methods of raising development finance including securitization of future flow receivables, diaspora bonds, and GDP-indexed bonds. It also highlights the role of shadow sovereign ratings in facilitating access to international capital markets. It argues that poor countries, especially those in Sub-Saharan Africa, can potentially raise tens of billions of dollars annually through these instruments.
The chapters in the book focus on the structures of the various innovative financing mechanisms, their track records and potential for tapping international capital markets, the constraints limiting their use, and policy measures that governments and international institutions can implement to alleviate these constraints.

Informations

• Publié par: world-bank-publications
• Publié le: 29 septembre 2008
• Nombre de lectures: 33
• EAN13: 9780821377062
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Innovative
Financing for
Development
S S K K
D r
Editors
aath plii
ar te ahuINNOVATIVE FINANCING
FOR DEVELOPMENTINNOVATIVE FINANCING
FOR DEVELOPMENT
Edited by
Suhas Ketkar
Dilip Ratha© 2009 The International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: [phone]
Internet: www.worldbank.org
E- mail: [e-mail]
All rights reserved
1 2 3 4 12 11 10 09
This volume is a product of the staff of the International Bank for Reconstruction and Devel-
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ISBN: 978-0-8213-7685-0
eISBN: 978-0-8213-7706-2
DOI: 10.1596/978-0-8213-7685-0
Library of Congress Cataloging- in- Publication Data
Innovative financing for development / Suhas Ketkar and Dilip Ratha (editors).
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-7685-0 — ISBN 978-0-8213-7706-2 (electronic)
1. Developing countries—Finance. 2. Economic development—Developing countries—
Finance. 3. Economic assistance—Developing countries. I. Ketkar, Suhas. II. Ratha, Dilip.
HG195.I555 2008
338.9009172'4— dc22
2008029533
Cover design: Naylor DesignContents
Foreword ix
Acknowledgments xi
About the Editors xiii
Abbreviations xv
1 Innovative Financing for Development: Overview 1
Suhas Ketkar and Dilip Ratha
2 Future-Flow Securitization for Development Finance 25
Suhas Ketkar and Dilip Ratha
3 Development Finance via Diaspora Bonds 59
Suhas Ketkar and Dilip Ratha
4 GDP-Indexed Bonds: Making It Happen 79
Stephany Griffith-Jones and Krishnan Sharma
5 Shadow Sovereign Ratings for Unrated Developing Countries 99
Dilip Ratha, Prabal De, and Sanket Mohapatra
6 Beyond Aid: New Sources and Innovative Mechanisms
for Financing Development in Sub-Saharan Africa 143
Dilip Ratha, Sanket Mohapatra, and Sonia Plaza
Index 185
vvi CONTENTS
Boxes
2.1 Pakistan Telecommunications Company Limited
(PTCL)—No Default on Asset-Backed Papers Even
in the Face of Selective Default on Sovereign Debt 30
2.2 Banco do Brasil’s (BdB) Nikkei Remittance
Trust Securitization 40
5.1 Sovereign Spreads Are Inversely Related to
Sovereign Ratings 102
6.1 Reliance on Short-Term Debt in Sub-Saharan Africa
152
6.2 New Players in Sub-Saharan Africa 155
6.3 Trade Finance as an Attractive Short-Term
Financing Option 162
Figures
1.1 Value of Bonded Debt in All Developing
Countries, 1970–2005 5
1.2 Debt- Trading Volume of Developing Countries,
1985–2007 6
1.3 Launch Spreads Decline with an Increase in
Sovereign Rating 14
2.1 Stylized Structure of a Typical Future-Flow
Securitization 27
2.2 Asset-Backed Securitization Issuance, 1992–2006 34
2.3 Major Issuers, 1992–2006 35
2.4 Rises in Remittances Following National Disasters 43
2.5 Recovery of Remittances after Tsunamis 44
2A.1 Credit Card Receivables Structure 53
2A.2 Crude Oil Receivables Structure 54
3.1 Total Bond Sales by Israel, 1996–2007 62
3.2 Israeli Bond Sales by Type, 1951–2007 63
3.3 Discount on Israeli DCI Bonds Compared with
U.S. Treasuries, 1953–2007 65
5.1 Composition of Private Capital Flows in Rated and
Unrated Countries, 2005 101
5.2 Evolution of Sovereign Credit Ratings, 1980–2006 105
5.3 Correlation of Sovereign Ratings by Different CONTENTS vii
Agencies 106
5.4 Evolution of Sovereign Credit Ratings in Selected
Countries, 1986–2006 107
5.5 Subsovereign Foreign Currency Debt Issues in
Developing Countries Rated by S&P, 1993–2005 108
5.6 Comparison of Actual S&P Ratings Established in
2006 with Predicted Ratings 118
5.7 Comparison of Actual Fitch Ratings at End-2006
with Predicted Ratings from the Other
Two Agencies 119
5.8 Distribution of Predicted Ratings 122
6.1 Resource Flows to Sub-Saharan Africa Remain
Less Diversified Than Flows to Other Developing
Regions 148
6.2 FDI Flows Are Larger in Oil-Exporting Countries
in Sub-Saharan Africa 150
6.3 Capital Outflows from Sub-Saharan Africa Have
Declined Recently 157
6.4 A Better Policy Environment Reduces
Capital Outflows 158
6.5 Launch Spreads Decline with an Increase in
Sovereign Rating 170
Tables
1.1 Hierarchy in Future- Flow- Backed Transactions 8
1.2 Innovations Classified by Financial Intermediation
Function 18
2.1 Hierarchy in Future-Flow-Backed Transactions 29
2.2 Future-Flow Securitization Worldwide, by Asset,
1992–2006 36
2.3 Securitization Potential of Regions and Sectors,
2003–06 37
2.4 Most Likely Issuers’ Securitization Potential, 38
2.5 Remittance- and DPR-Backed Transaction Ratings 43
2.6 Potential for Remittance-Backed Securitization 47
3.1 Bond Offerings by Israel 63viii CONTENTS
3.2 Diaspora Bonds Issued by India 66
3.3 Comparison of Diaspora Bonds Issued by
Israel and India 67
3.4 Countries with Large Diasporas in the
High-Income OECD Countries 74
5.1 Literature on Model-Based Determinants of Ratings 110
5.2 Ratings—Conversion from Letter to Numeric Scale 113
5.3 Regression Results Using 2005 Explanatory
Variables for Ratings in December 2006 115
5.4 Regression Results Using Dated Explanatory
Variables for Latest Ratings as of December 2006 117
5.5 Pooled Regression Results: On New Ratings 120
5.6 Regression Results: On Very First Rating 121
5.7 Predicted Ratings for Unrated Developing Countries 124
5A.1 Actual and Predicted Ratings for Rated Developing
Countries 129
5A.2 Contribution of Explanatory Variables to
Predicted S&P Ratings for Unrated Countries 132
6.1 Financial Flows to Sub-Saharan Africa and
Other Developing Countries, 1990–2006 147
6.2 Potential Market for Diaspora Bonds 159
6.3 Securitization Potential in Sub-Saharan Africa 167
6.4 Rated Sub-Saharan African Countries,
December 2007 171
6.5 Shadow Sovereign Ratings for Unrated Countries
in Sub-Saharan Africa, December 2007 172Foreword
In the run-up to the “Follow-up International Conference on Financing for
Development” to be held in Doha from November 28 to December 2, 2008,
it seems particularly timely to collect in one book writings on the various
market-based innovative methods of raising development finance. Although
developing countries are well advised to use caution in incurring large for-
eign debt obligations, especially of short duration, there is little doubt that
poor countries can benefit from cross-border capital whether channeled
through the public or private sectors. For example, many countries need to
rely on sizable foreign capital for infrastructure development. Achieving Mil-
lennium Development Goals by the 2015 deadline depends crucially on the
availability of adequate financing. However, since official development assis-
tance is expected to fall short of the requisite levels, market financing will be
both necessary and appropriate.
The papers in this book focus on various recent innovations in interna-
tional finance that allow developing countries to tap global capital markets
in times of low risk appetite, thereby reducing their vulnerability to booms
and busts in capital flows. Debt issues backed by future hard currency receiv-
ables and diaspora bonds fall into the category of mechanisms that are best
described as foul-weather friends. By linking the rate on interest to a coun-
try’s ability to pay, GDP-indexed bonds reduce the cyclical vulnerabilities of
developing countries. Furthermore, these innovative mechanisms permit
ix