A Framework for Restructuring Debt in Developing Countries through the Creation of Special Sovereign Borrowing Entities

The recent Global Financial Crisis (2007- present) has renewed the interest of the International Financial Institutions (IFI’s) in finding new methods of accommodating the continuing needs of developing countries for outside capital. This paper proposes the creation of a special sovereign borrowing entity (SSBE) under the auspices of the International Monetary Fund (IMF) and other International Financial Institutions (IFI’s) that would guarantee bond issuances by developing nations, package them in relatively small denominations of $50,000 - $500,000 US, and auction them to the public. Should a nation fail to pay its debts the SSBE may raise funds through a punitive tariff on all exports from the developing country, administered by all nations that are members of the IMF. An extensive illustration that contains computations and a Monte Carlo simulation is also provided to enhance the analytical material in this paper regarding the feasibility and viability of the proposed Special Sovereign Borrowing Entity (SSBE)