Interest on index linked debt instruments

Debt instruments linked to a foreign currency

Prohibiting the Chinese authorities from buying US debt would, of course, be tantamount to imposing capital controls, thereby breaking China s monopoly on such instruments.

Now, government bonds are by design instruments of debt.

This means no cross border sovereign debt (or esoteric instruments, such as collateralized debt obligations).

External debt of the capital importing developing countries 1982, Figures

1. Debt indicators for capital importing developing countries, 1983 1993 11

Likewise, economists have long noted that for countries gorging on capital inflows, there is a big difference between debt instruments and equity like investments, including both stocks and foreign direct investment.

Small peasants without capital were trapped in a vicious cycle of debt.

1. Foreign debt of the capital importing developing countries, 1983 1993 10

Where realistic debt restructuring scenarios indicate capital shortfalls, across the board conversion of bank debt into equity will be necessary.

1. Debt indicators for capital importing developing countries, 1982, 1987 and 1992 6

Table. External debt of the capital importing developing countries, 1982, 1987 1992 a

Thus, a higher proportion of debt in the firm's capital structure leads to higher ROE.

In issuing contingent capital, banks would have to pay a higher interest rate than they would on ordinary long term debt, because debt investors will face the true cost of capital, not the government subsidized cost.

Its inadequacy may lead to the formulation of a much older answer revulsion against the market economy, accompanied by indiscriminate condemnation of debt and debt instruments.

Banks often oppose higher equity asset ratios, because equity capital is more expensive than debt capital. But this is precisely because of the lemon effect.

The pro cyclical boom bust cycles of private capital inflows and outflows underscore the need for developing market institutions and instruments that encourage more stable capital flows.

This suggests that net private borrowing using debt instruments has been rather small over this recent period.

Nonetheless, we continue to transfer capital to rich countries to pay interest on our foreign debt.

Lastly, debt growth was somewhat restrained by the dynamism of non debt related capital movements, especially foreign direct and indirect investment (in equity capital), as well as the flow of resources to short term deposits in the region apos s banking systems, reflecting in part a repatriation of capital.

It cannot wait to inject capital into the banks. It must take immediate steps toward debt mutualization.

Southern Europe was experiencing a sell off of sovereign debt and a massive withdrawal of private capital.

Moreover, some debtor countries which have gone through debt restructurings soon resumed their access to capital markets.

(c) As the balance of payments deteriorated, especially after interruptions of capital inflows and sometimes massive flights of capital, the national currency was sharply devalued. This sharp devaluation increased further the cost of debt servicing and the debt to GDP ratio.

Capital account regulations could play a role in providing room for counter cyclical monetary policies that smooth debt ratios and spending and in improving external debt profiles.

This is why equity capital held by financial institutions typically is more than twice as expensive as debt capital and why these institutions try to minimize its use.

As capital fled the country between July 2011 and January 2012, France s TARGET debt increased by 95 billion.

The Depression had rendered capital markets incapable of absorbing large quantities of government (or, indeed, any other) debt.

The Fund also actively monitors capital market developments, and is implementing a more systematic assessment of debt sustainability.

This is a mistake. The European Commission should have introduced capital requirements on banks holdings of public debt.

External macroeconomic forces trade, debt management, direct investment, capital flows and access to technology must support development objectives.

Moreover, Africa apos s heavy external debt servicing obligations discouraged private investors and the influx of new capital.

In the area of capital markets, the impact on the stability of evolving financial institutions and instruments should be examined.

As a consequence, they are crowding into bonds and debt instruments that they view, rightly or wrongly, as safe vehicles.

Higher equity capital requirements, for example, require banks to fund themselves with relatively more equity and relatively less debt.

These include trade, debt management, direct investment, capital flows, access to technology, subregional and regional cooperation, and other areas.

Meanwhile, in developed capital markets, we are busily reinventing these macroprudential instruments, to use the term now in vogue in Basel.

Foreign participation in the financial sector brings expertise needed to provide more efficient savings instruments, risk management, and allocation of capital.

Debt not only caused an outflow of capital to pay the principal and interest on external debt, but also hindered efforts to attract foreign direct investment and promote economic activity, a fact not reflected in the debt flow approach.

Objections to the idea start with the question of whether there would be adequate demand for these novel sovereign debt instruments.

The financial support provided by the international financial institutions for the new reduced debt instruments had been a key facilitating factor.

The simplest way to achieve this would be to require banks exposed to southern European debt to raise more capital.

Lower interest rates on loans are available in capital markets to borrowers who have ample debt service coverage , which is defined as total revenues available for debt service as a percentage of the required debt service. The availability of ample

4. Various agreements had been concluded with international commercial banks in order to reduce the debt stock and debt service that had alleviated the debt problems of a growing number of countries which had regained access to international capital markets.