Dennis Essers

An assessment of debt-for-education swaps. Case studies on swap initiatives between Germany and Indonesia and between Spain and El Salvador

A decade has passed since participants in the World Education Forum committed themselves to achieve, by 2015, the six Education for All (EFA) goals under the Dakar Framework for Action. Despite significant progress, some of the goals are likely to be missed by a large margin. Besides the absence of a well co‐ordinated multi‐donor approach in education, another major problem is the lack of funds: the EFA financing gap in low‐income countries is now estimated at around

Local Currency Bond Market Development in Sub-Saharan Africa: A Stock-Taking Exercise and Analysis of Key Drivers

16 billion annually. This article zooms in on debt swaps as one particular instrument of innovative financing. More specifically it assesses the macro‐economic impacts of debt‐for‐education swaps and their relation to the aid approach now advocated by the donor community. It does so on the basis of theoretical insights from debt relief and case studies on recent swap initiatives between Germany and Indonesia and between Spain and El Salvador. Our conclusions are mixed. On the one hand, typical debt swaps suffer from macro‐economic flaws and, in view of competition amongst sectors, have limited potential in narrowing the EFA deficit. On the other hand, our case studies suggest that debt‐for‐education swaps can be engineered to better comply with the needs of recipient ownership and could in the future address deserving niche problems.

A Chameleon Called Debt Relief: Aid Modality Equivalence of Official Debt Relief to Poor Countries

ABSTRACT This article studies the current state and drivers of government local currency bond market (LCBM) development in Sub-Saharan Africa. We first show that, increasingly, African governments issue fixed-rate local currency bonds with tenors of ten years and more on a regular basis. However, African LCBMs are also often marked by illiquidity, very few corporate securities, and narrow, bank-dominated investor bases. Second, we present an econometric analysis of the drivers of African government LCBMs based on a new high-quality, OECD-compiled panel dataset. LCBM capitalization is found to be correlated negatively with governments’ fiscal balance and inflation, and positively with common law legal origins, institutional quality and democracy.

Localising Sovereign Debt: The Rise of Local Currency Bond Markets in Sub-Saharan Africa

This paper critically reviews three decades of official creditors’ public debt relief practice from a novel angle, along debt relief’s similarities with aid modalities. We show that debt relief to poor countries is a true ‘chameleon’ which mimics different sorts of development aid, from traditional project aid to multi-year general budget support. The ‘colour’ of this chameleon depends on the embedded conditionality, alignment with recipient country policies and systems and the budgetary resource effect of particular debt relief interventions. We argue that characterising debt relief from an aid modality equivalence perspective is helpful in better understanding its varying performance track record and holds important policy lessons for designing future operations.

Indonesia's debt-for-development swap experience : past, present and future

This paper analyses the development of local currency sovereign bond markets (LCBMs) in sub‐Saharan Africa (SSA), a potentially important source of longer‐term public finance. We make two contributions to the literature. First, we build a novel data set comprising 28 SSA countries for the period 2000–14 to uncover the main correlates of LCBM capitalisation, of local currency bond (LCB) tenors and of LCB issue yields. We find that LCBM capitalisation in SSA relates to politico‐institutional factors, overall financial development and financial system structure. For LCB tenors and issue yields, inflation levels matter too. Second, we complement our econometric analysis with qualitative case studies of Kenya and Nigeria, where we further investigate the drivers of LCBM development and place LCBMs in a broader public debt context. While we document the increasing importance of LCBMs in SSA, we also highlight new vulnerabilities, including those related to investor base composition.

Developing country vulnerability in light of the global financial crisis: Shock therapy? ☆

This article systematically reviews recent debt-for-development swaps in Indonesia, the only debtor country where the number of such swaps warrants their being considered as a deliberate government debt-relief policy and development finance strategy. We show that the 11 swaps Indonesia has signed with its bilateral creditors since 2002 have performed rather erratically across four criteria: an increase in resources at the debtor country or government budget level or both; an increase in resources for intended sector purposes; whether, taken together, these swaps ease debt burdens; and the extent of their alignment with government policy and systems. We find little evidence of learning on the Indonesian side. We believe that Indonesia can take a more proactive stance in negotiating the economic terms underlying its debt swaps, and we suggest concrete ways for it to do so.