Innovative financing instruments in Latin America and the Caribbean

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Innovative financing instruments in Latin America and the Caribbean


In the aftermath of the global financial crisis (2008–2009), the external financing needs of Latin America and the Caribbean increased significantly, reflecting a process of external debt accumulation in all developing regions, exacerbated by the impacts of COVID-19. The region is now the most indebted in the developing world, with a debt profile that makes it highly vulnerable to changes in international lending conditions and to perceptions of risk. This has placed a major constraint on government responses to the COVID-19 emergency and undermines their capacity to build forward better. This document considers two proposals to address these challenges: (i) expand and redistribute liquidity from developed to developing countries through innovative uses of SDRs; and (ii) expand the set of innovative instruments to increase debt repayment capacity and avoid over-indebtedness.

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Summary .-- Introduction .-- I. Special Drawing Rights: advantages, limitations, and innovative uses / Esteban Pérez Caldentey, Francisco G. Villarreal and Nicolás Cerón Moscoso .-- II. State-contingent debt instruments as insurance against future sovereign debtcrises in Latin American / Leonardo Vera Azaf .-- III. Income-linked bonds / Fausto Hernández .-- IV. Hurricane clauses in debt contracts in the context of unsustainable debt in Barbados and Grenada / Dave Seerattan .-- V. Sustainable finance / Esteban Pérez Caldentey .-- VI. A multilateral credit rating agency / Susan K. Schroeder.