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close this bookDisaster Economics (Department of Humanitarian Affairs/United Nations Disaster Relief Office - United Nations Development Programme , 1994, 56 p.)
close this folderPART 3 - Financing options
View the document(introduction...)
View the documentThe traditional route
View the documentDebt swaps
View the documentBlocked funds
View the documentTriangular food aid
View the documentTrust funds
View the documentDisaster insurance
View the documentRevolving funds
View the documentCentral Bank Assistance
View the documentCoordinating foreign disaster assistance

Blocked funds

As commercial bank debt exposure in Africa is not very large, the scope for using debt swaps there is less than in Latin America. An alternative to debt swaps, more appropriate to Africa, relates to “blocked funds”. Blocked funds will generally belong to private investors, (for example, who have given export credit guarantees), who must inevitably wait in the queue until foreign exchange becomes available. Blocked fund swaps become possible when a debtor country government approves the repatriation of dividends or equity, but is unable in practice to facilitate such a decision because the necessary foreign exchange is not available.

These blocked funds, therefore, are only of use in the debtor country as a means of financing local currency expenditures. The principles for “unlocking” such funds are similar to those related to “swapping” commercial debt outstanding, and can be acquired through donation, secondary sale or auction. It is estimated that, presently, blocked funds amount to several billion US dollars worldwide.

Blocked funds also may be the result of restrictions imposed by donor countries on the use of profits resulting from concessional sales or other aid programs. For example, following the earthquake in Dhamar, Yemen in 1982, the United States engaged in a PL 480 grain sale to the government of Yemen. The U.S. sold grain to the Yemeni government who in turn sold it to consumers. The U.S. AID required that the profits from the sale of the grain be deposited in an account of the Central Bank of Yemen and that these funds be used to finance housing reconstruction after the earthquake.