Financing Developing Country Debt: A Sovereign Borrowing Entity Proposal

This paper proposes the creation of a Sovereign Borrowing Entity (SBE) under the auspices of the International Monetary Fund (IMF) and other International Financial Institutions (IFIs). The SBE guarantees bond issuances by developing nations, packages them in relatively small denominations, and auctions them to the public. Should a developing debtor country fail to pay its debt, the SBE would raise funds through a punitive tariff on all exports administered by the IMF member nations. We develop a theoretical model of the proposed Sovereign Borrowing Entity (SBE) and provide viability evidence using export and debt data from the World Bank. It is our hope that this paper will encourage further dialogue and research on financing developing country debt in a more effective manner.