We 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2675.
Length: Date of creation: Apr 1989 Date of revision: Handle: RePEc:nbr:nberwo:2675
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Rudiger Dornbusch, 1988.
"Our LDC Debts,"
NBER Working Papers
2138, National Bureau of Economic Research, Inc.
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Rudiger Dornbusch & Thomas S. Johnson & Anne O. Krueger, 1988.
"Our LDC Debts,"
NBER Chapters,
in: The United States in the World Economy, pages 161-214
National Bureau of Economic Research, Inc.
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