Brady bonds

Brady bonds are debt instruments issued by governments and private lenders in developing countries as a means of restructuring their debt. Named after Nicholas Brady, sec­retary of the Treasury during the George H. W. Bush admin­istration, these BONDS were first issued by the Mexican government as part of a plan to repackage loans made to Mexico during the 1980s. Many governments in develop­ing countries had borrowed billions of dollars but were not able to pay back the loans. Poor INVESTMENT, management, and corruption led governments into situations where they owed significant amounts to foreign lenders and had few productive ASSETS to use or tax to pay off the loans. Just the interest due on the loans represented a significant portion of most government’s budgets. Known as “debt overhang,” these payments prevented governments from making new investments in education, INFRASTRUCTURE, and resource development needed to generate ECONOMIC DEVELOPMENT.

Under Nicholas Brady, a pool of funds from the United States, WORLD BANK, and INTERNATIONAL MONETARY FUND (IMF) was used to guarantee new bonds issued by the developing country government. The new bonds offered to lenders reduced the amount of debt owed and stretched payments over a longer period of time. This lowered the payments of the debtor country, allowing its government greater financial resources to be used in economic devel­opment plans. An alternative procedure provided no debt reduction but lower INTEREST RATES on the new debt than that paid for the old debt in return for guarantees of pay­ment of the principal with the proceeds from long-term bonds provided by the United States and other developed countries. To lenders who faced DEFAULT by the borrowing country, the new debt plans, backed by the funds coordi­nated by Nicholas Brady, were better than default and more secure than direct loans to the borrowing government.

Brady plan restructurings were used in many deveop­ing countries in the late 1980s and early 1990s. As world ECONOMIC CONDITIONS improved, some countries, particu­larly Mexico, paid off their Brady bonds. On the other hand, in 1999 Ecuador became the first government to default on its bonds.

Once issued, Brady bonds became part of international financial debt instruments. A few MUTUAL FUNDS special­ized in purchasing Brady bonds of various countries at deep discounts, hoping to profit from the eventual payoff of these high-risk bonds. These investors recognize the biggest concern associated with these bonds is political risk. The Brady plan was an outgrowth of an earlier strat­egy proposed by then-Secretary of Treasury James Baker, which emphasized economic reforms as a condition for new lending to developing countries.

Border Environmental Cooperation Commission

The Border Environmental Cooperation Commission (BECC), a binational organization created in 1993 as a side agreement to the NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA), helps states, localities, and the private sector develop and find financing for environment INFRASTRUC­TURE projects along the U.S.-Mexico border. The BECC, which identifies, evaluates, and certifies affordable envi­ronment projects with the goal of improving the quality of life for citizens along the border, is an outgrowth of ideas put forth by UCLA urban planning professor Raul Hinjosa and others. The idea for the BECC was adopted by the Bush Administration in 1992 and superseded the 1983 Agreement on Cooperation for the Protection and Improvement of the Environment on the Border Area (the 1983 La Paz Agreement).

The Commission maintains offices in both El Paso, Texas, and Ciudad Juarez, Mexico, and is directed by a 10­member BOARD OF DIRECTORS, with five board members from each country. The Director of the U.S. Environmen­tal Protection Agency is an ex officio member of the BECC board. Decisions of the board are based on a majority vote, thus requiring support from members representing both countries. A major role of the BECC is certifying projects for financing by the NORTH AMERICAN DEVELOPMENT BANK (NAD Bank). By 1998 the BECC had certified 16 projects, mostly water-treatment and municipal solid-waste proj­ects. Many more projects were yet to be addressed, and financing problems, particularly for Mexican municipali­ties lacking authority to enter into public works financing and taxation agreements, limited the ability of the BECC and NAD Bank to address long-term problems.

Many U.S.-Mexico border problems stem from rapid growth of the MAQUILADORAS in Mexico. After the PESO CRI­SIS (1994–95), the reduced cost of Mexican labor for inter­national firms and NAFTA increased access to the U.S. market and overwhelmed an already weak infrastructure. Although the BECC was created to address problems asso­ciated with border-area growth, it had limited impact in the 1990s.

bill of lading

A bill of lading is a document issued by a shipping com­pany to acknowledge that the seller has delivered particu­lar goods to it. Bills of lading are used in both interstate and international shipments. The Federal Bill of Lading Act (1916, formally called the Pomerene Act) governs the transfer and transferability of bills of lading, of which there are two types: a nonnegotiable or “straight” bill of lading; and negotiable bills of lading, known as “white” and “yel­low” bills because of the colors of paper on which they are printed. Both types usually represent the seller’s CONTRACT with the shipping company, setting the terms and TARIFFs of that contract.

In a nonnegotiable bill of lading, the carrier is obligated to deliver the goods to the designated destination point and is liable for misdelivery of the goods. Nonnegotiable bills of lading are sometimes called “air waybills,” “sea waybills,” and “freight receipts,” depending on the intended method of transportation. Nonnegotiable bills are used when the seller is expecting payment upon delivery, not for payment based on bill-of-lading documentation.

The carrier issues a negotiable bill of lading to a person (consignee) or “order.” This allows the person to endorse the bill of lading to “order” delivery of the goods to oth­ers. Negotiable bills can be endorsed to third parties, buy­ers or creditors, allowing the “holder” of the bill to receive the goods at the destination point. The shipping company is liable to the holder of a negotiable bill of lading for mis­delivery if it delivers the goods to anyone but the holder. In this way the negotiable bill of lading is similar to a title document conferring ownership of the goods. Negotiable bills of lading are used when sellers are being paid at the time goods are shipped. In international business letters of credit are often used, obligating the buyer’s bank to pay the amount of the contract once bills of lading are sub­mitted, usually by the seller’s bank to the buyer’s bank. The banks use negotiable bills of lading to control title to the goods in their contracts with buyers and sellers. In the United States, negotiable bills of lading are most often used, but some countries only allow the use of nonnego­tiable bills of lading.