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Bauer, Christian ; Herz, Bernhard ; Hoops, Stefan:
A cheap lunch for emerging markets : Removing international financial market imperfections with modern financial instruments.
In: World Development.
Bd. 36
(2008)
Heft 9
.
- S. 1514-1530.
ISSN 0305-750X
DOI: https://doi.org/10.1016/j.worlddev.2007.09.003
Abstract
This paper develops a market-based procedure to significantly reduce the indebted-
ness of emerging markets by applying an asset-backed security approach to a pool of emerging
market bonds. In an extensive simulation study based on historical data, the cumulated interest
savings over a horizon of 10 years amount to about 20% of the credit sum on average (with a stan-
dard deviation of 8%) and up to 44% for individual countries—dependent on the internal distribu-
tion of the surplus. The theoretical structure of the transaction is explicitly derived in cooperation
with professionals from major commercial banks, and it implies only negligible implementation
cost. The implementation requires neither institutional reforms nor debt forgiveness, but can sup-
plement or substitute previous measures.