Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Catch up on the day's biggest business stories
Subscribe to Axios Closer for insights into the day’s business news and trends and why they matter
Stay on top of the latest market trends
Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.
Sports news worthy of your time
Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.
Tech news worthy of your time
Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.
Get the inside stories
Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Want a daily digest of the top Denver news?
Get a daily digest of the most important stories affecting your hometown with Axios Denver
Want a daily digest of the top Des Moines news?
Get a daily digest of the most important stories affecting your hometown with Axios Des Moines
Want a daily digest of the top Twin Cities news?
Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities
Want a daily digest of the top Tampa Bay news?
Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay
Want a daily digest of the top Charlotte news?
Get a daily digest of the most important stories affecting your hometown with Axios Charlotte
Bankruptcy is not an option for sovereign borrowers. That's not a big problem for countries like the U.S. that can borrow unlimited amounts in their own currency.
Yes, but: It's a huge problem for most countries that need to fund their coronavirus response while also servicing existing debts. For those countries, one solution is the creation of new obligations issued at a super-sovereign level.
Two big ideas along those lines are the proposals that the IMF should issue $500 billion in new Special Drawing Rights and that the EU should issue perpetual bonds (subscription).
Poor countries should also be able to push back their payments to private-sector bondholders for 12 months. A new proposal from a group of authors, including sovereign debt guru Lee Buchheit, suggests a clever way for them to do that.
- Countries would instead send the payments to the World Bank, which would use them to fund a new credit facility.
- That facility would then immediately lend the money back to the sovereign, to be used to fight COVID-19.
Here's why it makes sense for countries to send payments to the World Bank, just for those monies to come straight back again.
- The Bank can certify that the funds will be used to fight the virus.
- After a year, the countries would repay the Bank, with interest. (Thanks to its preferred creditor status, it nearly always gets repaid.) The Bank, in turn, would pass the money on to bondholders.
- The bondholders would have very little incentive to sue for their missed coupon payments, because it would be cheaper and easier to just wait a year to get their money from the Bank. (If countries are sued, there's a "doctrine of necessity" they will be able to use to defend themselves.)
By the numbers: According to the World Bank, remittances to poor countries — the most important way they get money from abroad — are expected to fall by an unprecedented $109 billion this year. That also happens to be roughly the amount of money those countries need to spend on servicing foreign bonds.
Go deeper: The IMF's coronavirus depression projection is a show of optimism