Lending to the Poorest Countries [E-Book]: A New Counter-Cyclical Debt Instrument / Daniel Cohen ... [et al]
Cohen, Daniel.
Djoufelkit-Cottenet, Hélène. / Jacquet, Pierre. / Valadier, Cécile.
Paris : OECD Publishing, 2008
45 p. ; 21 x 29.7cm.
OECD Development Centre Working Papers ; 269
Full Text
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.