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          Multilateral Indexed Loans And Debt Sustainability
          Discussion paper by Alessandro Missale, Emanuele Bacchiocchi, 2012, 50 pages
          Categories: Finance for Development, International Financial System

          This study focuses on the potential for introducing indexation on loans provided by multilateral lenders to low income countries (LICs) and examines whether a reform of their lending policy is feasible and economically justified. It provides new evidence for a group of 40 international development association (IDA) countries over the 1990–2010 period for three types of debt: (i) foreign currency loans indexed to real gross domestic product (GDP); (ii) foreign currency loans indexed to the dollar value of exports; and (iii) inflation-indexed loans denominated in local currency. The study finds that both GDP indexation and domestic currency lending are feasible policies. However, the analysis shows that ‘one size fits all solution’ does not exist to the problem of stabilizing the debt ratio, making a reform of multilateral lending, desirable to all LICs, difficult to implement.