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Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo
The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.
International Monetary Fund

. Constraints on the Use of Contingent Financial Instruments by LICs D. Is there a Case for Greater Use of Ex Ante Instruments by LICs? IV. Role of the International Community: Recent Experience and Prospective Steps A. The Roles of the IMF and World Bank in Shock Financing B. Recent and Ongoing Reforms to Ex Post Financing Instruments C. Contingent Financial Instruments for LICs: Future Considerations V. Concluding Questions References Table 1. Comparison of Potential Reference Variables Figures 1. Frequency and Scale of Shocks 2

International Monetary Fund

reference variable , such as output (measured by real GDP), with various macroeconomic variables. To conduct these tests, we follow the common practice in the business cycle literature and decompose the time series into secular and cyclical components, using an econometric filtering technique. 12 Once the data are filtered, the sample is divided into the five cycles, using the official reference dates. For each of these samples, and the sample as a whole, we compute the cross-correlations between the reference variable and the variable under consideration. A positive

International Monetary Fund
The paper examines the case for contingent financial instruments for low-income countries (LICs), from both the market and official sector. These include commodity price hedging instruments, contingent debt instruments (commodity-linked bonds, deferred repayment loans), and natural disaster insurance, for example. The paper considers the adequacy of the existing framework of ex post and ex ante support to LICs facing exogenous shocks, and examines the need for and possible constraints to greater availability of contingent instruments. Would there be a role for the international community, particularly the IMF and World Bank, in helping to address the constraints that limit development and use of these instruments?
International Monetary Fund

, requires mechanisms that can generate transfers from the creditor to the LIC to reduce the risk of debt distress. In either case, the aim should be to link debt service payments closely to the government’s repayment capacity. In that regard, instruments that are symmetric (cutting debt service in bad times, increasing it in good times) and provide relief proportional to the shock may have some advantages compared to asymmetric instruments with discrete triggering mechanisms. 50. Choosing a reference variable for indexation involves a tradeoff between limiting moral

International Monetary Fund
This Selected Issues paper analyzes the key features of the Japanese business cycle, and investigates whether the current recovery differs from past recoveries. In particular, this paper poses the following questions: what are the main characteristics of Japanese business cycles since 1980, and what happens to output, expenditure components, and prices over the cycle? The paper reviews the recent performance and policy issues with respect to the banking sector, insurance sector, and public financial sector in Japan. The stability of the financial sector is also assessed.
Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo

fixed-income investors. These high-return goals, in turn, put significant downward pressure on the prices of VRIs. Valuation uncertainty and illiquidity of VRIs . VRIs with payouts linked to GDP or commodity exports are difficult to price. Such instruments are viewed as exotic derivative instruments with very limited secondary market liquidity, generating a wide bid-ask spread for these instruments (up to 25 percent of mid-value for low-priced options). The lack of standardization of VRI payment structures and reference variables, initial low market value, and