GDP-Indexed Bonds: Making It Happen potx

Economic &Social Affairs

DESA Working Paper No. 21

ST/ESA/2006/DWP/21

April 2006

GDP-Indexed Bonds: Making It Happen

Stephany Griffi th-Jones and Krishnan Sharma

Abstract

There has been increasing interest in exploring fi nancial instruments that could limit the cyclical

vulnerabilities of developing countries and reduce the likelihood of defaults and debt crises. GDP￾indexed bonds fall into this category and may also generate a wider range of benefi ts for issuer

countries, investors and the global fi nancial system. The authors also examine the concerns and

obstacles relating to the introduction of this instrument, suggesting that some may be exaggerated

while others could be overcome. The paper calls for international public action to help develop

markets for GDP-linked bonds and proposes a number of actions, some of which would require

collaboration between Governments, multilateral development banks and the private sector.

JEL Classifi cation: F21 (International Investment; Long-Term Capital Movements), F30

(International Finance: General), G15 (International Financial Markets).

Keywords: GDP-indexed bonds, cyclical vulnerabilities, issuers, investors, public good, interna￾tional public action.

Stephany Griffi th-Jones is a Professorial Fellow at the Institute of Development Studies,

University of Sussex. At the time of writing, she was a Principal Offi cer at the Department of

Economic and Social Affairs.

Krishnan Sharma is an Economic Affairs Offi cer and the Focal Point for Business Engagement

in the Financing for Development Offi ce, Department of Economic and Social Affairs.

Comments should be addressed by email to the authors at S.Griffi [email protected] or

[email protected].