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Sub Sovereign Bonds

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DESA Working Paper No. 76 ST/ESA/2009/DWP/76 July 2009

A f f a i r s

Infrastructure finance in developing countries— the potential of sub-sovereign bonds
Daniel Platz

Abstract This paper sets out to explore the potential of sub-sovereign bonds in financing infrastructure in developing countries. Taking into account the historical experience of the US, it develops a supply and demand side framework for analysis of the market for sub-sovereign bonded debt in developing countries and applies this framework to Mexico, India and South Africa. Finally, it draws lessons for countries seeking to promote markets for sub-sovereign bonds. Evidence suggests that the regulatory environment, a diversified financial sector and increased capacity for debt support and management matter most for the development of the sub-sovereign bond market. JEL Classification: H74 – State and Local Borrowing, H54 – Infrastructures; Other Public Investment and Capital Stock, H41 – Public Goods, H81 – Governmental Loans, Loan Guarantees, Credits, and Grants Keywords: Sub-sovereign bonds, infrastructure finance, issuers, investors, financial sector, municipal finance

Daniel Platz is an Economic Affairs Officer in the Financing for Development Office of the United Nations Department of Economic and Social Affairs. Comments should be addressed by e-mail to the author: platz@un.org

Contents
Introduction................................................................................................................................. The case for sub-sovereign bonds .................................................................................................. Global perspective on the current market for sub-sovereign bonds ............................................... Supply-side factors in sub-sovereign bond issuances in developing countries ................................ Demand-side factors in sub-sovereign bond issuances in developing...