Events
How to Cope with Volatile Commodity Export Prices: Four Proposals
OCP Headquarters, Casablanca
In search of finance for their significant social and infrastructural projects, developing economies are compelled to look at more “exotic” options. Commodity-backed debt is a solution that suggests itself to resource-exporting countries.
Whereas we often hear of the natural resource curse, wealth in commodities can be a boon for countries seeking finance. One medium of finance is commodity-backed bonds, borrowing from international capital markets whilst hedging against fluctuations in the price and export earnings of the commodity in question. Since said bonds are linked to the commodity price, the bonds increase in value with the price, whereas their debt shrinks as this price decreases. The benefit is two-fold: providing finance and a safety net against plummeting commodity prices.
In order to contain the commodity volatility, countries may also consider other policy proposals such as derivatives (i.e. options), fiscal, and/or monetary policies. For instance, fiscal policy must be counter-cyclically leaning—this is to be guaranteed by institutions, independent of political interests. Monetary policy, on the other hand, can be used to reinforce the credibility of many developing economies.
The presentation, by professor Frankel, will go into more depth regarding these proposals. It will also be an opportunity to tailor these policy recommendations and discuss them with the audience.