North South Finance the Implications of Overreliance On Bank Credit
North South Finance the Implications of Overreliance On Bank Credit
Donald R Lessard
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9 This section draws substantially on Lessard and Wellons [1979] 10 See, for example, Goodman [1982]. 11 For a recent discussion, see Williamson [1981]. -17- With such a loan, a real rate of Interest would be contractually fixed, but the outstanding principal would be adjusted periodically for changes in some general price index. A major issue with index-linked debt is the choice of the index, since different borrowers would want different base currencies or combinations of currencies. It is po...ssible, however, that a large number of LDC's would find a standard combination — such as a price-level adjusted SDR — attractive. Increasing Repayment Flexibility While the above measures would go a long way toward reducing the negative impacts of credit market fluctuations on DC debt service requirements, they do not provide DCs with a safety valve in the case of difficulties resulting from world economic downturns, shifts in terms of trade or of local economic conditions. The IMF already addresses this issue with its compensatory finance scheme, but commercial finance typically provides no flexibility.
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