In Brief

Pages4-5

Page 4

Collective action clauses gain support

Three recent international sovereign bond issues containing collective action clauses (CACs) have been a resounding success, putting an end to emerging market countries' fears that such clauses would raise borrowing costs. There is no evidence that the bonds issued by Mexico, Brazil, and South Africa under New York law included a yield premium either at launch or in subsequent trading. Moreover, Uruguay successfully exchanged almost all of its privately held external debt into bond instruments that contained CACs, enabling it to avert a debt default.

The IMF has been promoting CACs as a tool for making sovereign debt restructuring more orderly and predictable. If a country is at risk of defaulting on its debt, CACs would prevent a small group of creditors from blocking a debt restructuring favored by the majority of creditors. Although CACs have long been included in bonds issued under English and Japanese law, they had not normally been included in issues in New York's bond market. An IMF paper on this issue, "Collective Action Clauses: Recent Developments and Issues," is available on the IMF's website at http://www.imf.org/external/np/psi/2003/032503.htm.

Debt for health

The World Bank has launched an innovative program to help eradicate polio worldwide by 2005. Developing countries will receive loans from the International Development Association (IDA), the World Bank's arm for concessional lending to the poorest countries, to finance national polio eradication programs. When a country successfully completes its program, its loan will be bought down by the Investment Partnership for Polio, which comprises the World Bank, the Bill and Melinda Gates Foundation, Rotary International, and the United Nations Foundation.

To fund the buy-downs, the partnership has established a trust fund with $25 million from the Gates Foundation and $25 million from Rotary International and the UN Foundation. This $50 million investment will buy down $120-140 million in IDA loans.

In April, the Bank approved a $28 million interest-free loan for the purchase of oral polio vaccine in Nigeria, and, in May, it approved a $20 million loan to Pakistan. The partnership said it would move quickly in the coming months to fund the...

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