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Sovereign Debt Repurchases: No Cure for Overhang

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Author Info
Jeremy Bulow
Kenneth Rogoff

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Abstract

We show, in a reasonably general model, that if a highly indebted country has good investment projects available to it, then it will not benefit from using any of its resources to buy back debt at market prices. Debt buybacks and debt-equity swaps only make sense for the country if these programs are heavily subsidized by creditors. This result holds for all buyback programs large and small, so long as they involve voluntary creditor participation and are not part of a larger deal including offsetting concessions from lenders. Our analysis therefore casts doubt on the popular argument that unilateral debt repurchases benefit HICs by relieving "debt overhang".

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2850.

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Date of creation: Feb 1989
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Handle: RePEc:nbr:nberwo:2850

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  1. 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. [Downloadable!] (restricted)
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  2. Jeremy Bulow & Kenneth Rogoff, 1988. "The Buyback Boondoggle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1988-2), pages 675-704. [Downloadable!]
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  1. Jonathan P. Thomas, 2001. "Default Costs, Willingness to Pay and Sovereign Debt Buybacks," International Finance 0103002, EconWPA. [Downloadable!]
  2. Silvia Marchesi, 2006. "Buybacks of domestic debt in public debt management," European Journal of Finance, Taylor and Francis Journals, vol. 12(5), pages 379-400, July. [Downloadable!] (restricted)
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  3. Broner, Fernando A. & Lorenzoni, Guido & Schmukler, Sergio L., 2004. "Why do emerging economies borrow short term?," Policy Research Working Paper Series 3389, The World Bank. [Downloadable!]
    Other versions:
  4. Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," Economics Working Papers 998, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2009. [Downloadable!]
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  5. Der-Yuan Yang, . "A Cooperative Perspective on Sovereign Debt: Past and Present," University of California at Santa Barbara, Economics Working Paper Series 13-97, Department of Economics, UC Santa Barbara. [Downloadable!]
  6. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Carlos I. Medeiros & Parmeshwar Ramlogan & Magdalena Polan, 2007. "A Primer on Sovereign Debt Buybacks and Swaps," IMF Working Papers 07/58, International Monetary Fund. [Downloadable!]
  8. Cassimon, Danny & van Campenhout, Bjorn, 2007. "Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPCs," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  9. Patrick Bolton & Olivier Jeanne, 2005. "Structuring and Restructuring Sovereign Debt: The Role of Seniority," NBER Working Papers 11071, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Robert Gertner & David Scharfstein, 1991. "A Theory of Workouts and the Effects of Reorganization Law," NBER Technical Working Papers 0103, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Bulow, Jeremy & Rogoff, Kenneth & Ning S. Zhu & DEC & a descri & Buyback arrangements, 1994. "Estimating the efficiency gains of debt restructuring," Policy Research Working Paper Series 1317, The World Bank. [Downloadable!]
  12. Danny Cassimon & Bjorn Van Campenhout, 2007. "Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPC Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(4), pages 742-763, December. [Downloadable!] (restricted)
  13. Patrick Bolton & Olivier Jeanne, 2007. "Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime," IMF Working Papers 07/192, International Monetary Fund. [Downloadable!]
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