Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief
AbstractWe compare various forms of market-based debt relief with coordinated debt forgiveness on the part of creditors. These schemes lead to different allocations of resources and levels of debtor and creditor welfare, but all attempt to stimulate debtor investment through reductions in the level of debt. If investment-incentive effects are present, then investment in liquidity-constrained debtors will respond by enough to make a reduction in debt profitable, but not by enough to make the reduction in debt optimal. For these countries the optimal debt-relief package (from the creditors perspective) will include an infusion of new lending.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2675.
Date of creation: Apr 1989
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Other versions of this item:
- Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
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- Jeffrey Sachs, 1988. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Working Papers 2644, National Bureau of Economic Research, Inc.
- Rudiger Dornbusch & Thomas S. Johnson & Anne O. Krueger, 1988.
"Our LDC Debts,"
in: The United States in the World Economy, pages 161-214
National Bureau of Economic Research, Inc.
- Paul R. Krugman, 1989.
"Financing vs. Forgiving a Debt Overhang,"
NBER Working Papers
2486, National Bureau of Economic Research, Inc.
- Jeremy I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt Restructurings: Panacea or Pangloss?," NBER Working Papers 2637, National Bureau of Economic Research, Inc.
- Paul R. Krugman, 1989. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
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