Tag Archives: Mexico

Government Debt with State Contingent Coupons

On VoxEU, Myrvin Anthony, Narcissa Balta, Tom Best, Sanaa Nadeem, and Eriko Togo discuss the history of government debt with state contingent coupons and offer some lessons.

  • In the mid-19th century, the Confederate states issued cotton-linked bonds
  • In the late 1970s, Mexico issued oil-linked bonds
  • In the 2000s, Turkey issued revenue-indexed bonds
  • Since 2014, Uruguay issues nominal wage-issued bonds
  • Some other examples (figure taken from the column):
  • Obviously, confidence in data quality and thus, quality of institutions is important for the success of such issues.

State contingent securities also have been used in debt restructurings:

The first use of state contingent bonds in debt restructurings occurred in the Brady deals from 1989-97, which allowed commercial banks’ claims on debtor countries to be exchanged for tradable instruments, allowing the banks to clean up their balance sheets. Many of these instruments included ‘value recovery rights’, which envisaged additional debt payments in circumstances where the debtor country’s economic or terms of trade conditions improved substantially … Oil exporters generally linked the payments to oil prices, while other countries linked either to GDP or measures of the terms of trade. Many of the Brady instruments subsequently made significant ongoing upside payments (e.g. Bosnia and Venezuela), while in some cases sovereigns chose to repurchase the instruments as it became clear that upside payments would be triggered (e.g. Mexico, and Bulgaria in the mid-2000s).

More recently, ‘upside’ GDP-warrants have featured as part of the package of bonds issued to creditors in each of the three major restructurings of the past decade: Argentina (2005 and 2010), Greece (2012), and Ukraine (2015). In the case of Grenada (2015), the restructuring deal included instruments with both upside and downside features (Table 2).

Inflation linked bonds have been successful:

Inflation-linked bonds have a long history, dating back to a 1780 issuance by the State of Massachusetts … More recently, they emerged in Latin America in the 1950s and 1960s, in an environment of very high domestic inflation, and the UK became the first advanced economy to issue inflation-linked bonds in 1981. … the global stock of government inflation-linked bonds had grown to around USD 3 trillion by 2015 … Despite this recent growth, inflation-linked debt still accounts for a relatively small share of sovereign debt portfolios in most countries …

Related VoxEU column on policy implications.

World War I in 40 Maps

Zack Beauchamp, Timothy B. Lee and Matthew Yglesias provide a fascinating account of World War I in Vox. Short texts accompanying 40 maps cover the central European powers, Russia, the US, the Balkans, Africa, the Ottoman Empire, Palestine, Arabia, Mexico as well as technology and strategy of the campaigns.

Text 23 on “Britain conquering Palestine:”

After the failure of the Gallipoli campaign in 1916, Allied forces regrouped in Egypt and began making plans to take Ottoman-held land in the Levant. This map shows part of that effort, Britain’s successful 1917 campaign in Palestine. The British invasion of Palestine would have long-lasting consequences. On November 2, 1917, British Foreign Secretary Arthur Balfour wrote a letter endorsing “the establishment in Palestine of a national home for the Jewish people.” Balfour cautioned that “nothing shall be done that may prejudice the civil and religious rights of existing non-Jewish communities in Palestine.” In 1922, the League of Nations officially endorsed British administration of Palestine. British policies after World War I helped lay the groundwork for the eventual UN partition of Palestine between Arab and Jewish states — and everything that followed from that.

Text 24 on “Lawrence of Arabia and Britain’s betrayal of Arab allies:”

One of the most remarkable figures of World War I was TE Lawrence, whose exploits in the Middle East were immortalized in the 1962 movie Lawrence of Arabia. Before the war, Lawrence was an archeologist, and he got to know the Middle East during expeditions to the region. When war broke out, the British recruited him to help organize an Arab revolt against the Ottoman empire. His pre-war connections made him particularly effective in this role. He fought alongside the Arabs in a series of battles between 1916 and 1918. At the end of the war in November 1918, Lawrence presented this map to his superiors in Britain, showing proposed borders for a postwar Middle East. The British had promised independence to Arab Allies who participated in the rebellion, and Lawrence attended the 1919 Paris Peace Conference to press for these promises to be kept. Instead, the British and French divided Arab territories under the terms of the Sykes–Picot Agreement (discussed below), which they had secretly negotiated in 1916.

Text 39 on “Sykes-Picot and the breakup of the Ottoman empire:”

World War I also transformed the Middle East. In 1916, French diplomat Francois Georges-Picot and his British counterpart, Sir Mark Sykes, drew up a map dividing the Ottoman Empire’s Middle Eastern territory between British and French zones of control. The agreement permitted British and French authorities to divide up their respective territories however they pleased. This led to the creation of a series of Arab countries — Lebanon, Syria, Iraq, Jordan, and so on — whose borders and political institutions only dimly reflected the Arab world’s ethno-sectarian makeup. Many scholars believe the Sykes-Picot borders were a major factor in the chaotic state of the Middle East in the decades since then.