The 'market discipline' approach to subnational finance requires that moral hazard derived from the possibility of a central government bailout be made insignificantly small. Therefore, governments interested in following this approach and willing to abide by its rules should start by creating...

Direct lending by multilateral development banks to the private sector without sovereign guarantee raises two important issues. First, their presence in the financial markets alters the perception of risk, and that difference in perceived risk carries a market value; the question becomes who...