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Recent experience with commercial bank debt reduction

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Author Info
Claessens, Stijn
Diwan, Ishac
Fernandez-Arias, Eduardo

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Abstract

The authors review the case for market-based debt reduction and concerted debt reduction. They explain the new menu-based approach to debt reduction and discuss why it may be preferred to market-based and concerted debt reduction. In a review of the five recent debt-reduction agreements, they find that the menu approach indeed achieved debt reduction at substantially lower costs than a comparable market-based operation. By one measure, the five countries may have saved more than $8 billion. Even a menu-based approach to debt reduction, however, is unlikely to directly benefit the debtor financially. They find that the debtors suffered financial losses equal to a few percent of their GDPs. Indirect benefits, or efficiency gains associated with debt reduction, are necessary to make the operation benefit the debtor.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 995.

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Date of creation: 31 Oct 1992
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Handle: RePEc:wbk:wbrwps:995

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Related research
Keywords: Strategic Debt Management; Economic Theory&Research; Financial Intermediation; Environmental Economics&Policies; Banks&Banking Reform;

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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.:
  1. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 289-309, April. [Downloadable!] (restricted)
  2. Lamdany, R. & Underwood, J., 1989. "Illustrative Effects Of Voluntary Debt And Debt Service Reduction Operations," World Bank - Discussion Papers 66, World Bank.
  3. Claessens, Stijn & van Wijnbergen, Sweder, 1990. "An option - pricing approach to secondary market debt : applied to Mexico," Policy Research Working Paper Series 333, The World Bank. [Downloadable!]
  4. Fernandez-Arias, Eduardo, 1991. "A dynamic bargaining model of sovereign debt," Policy Research Working Paper Series 778, The World Bank. [Downloadable!]
  5. Paul R. Krugman, 1989. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Fernandez, Raquel & Ozler, Sule, 1991. "Debt concentration and secondary market prices," Policy Research Working Paper Series 570, The World Bank. [Downloadable!]
  7. Carmichael, Jeffrey, 1989. "The Debt Crisis: Where Do We Stand after Seven Years?," World Bank Research Observer, Oxford University Press, vol. 4(2), pages 121-42, July.
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Cited by:
(explanations, 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.)

  1. Craig Burnside & Domenico Fanizza, 2004. "Hiccups for HIPCs?," NBER Working Papers 10903, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank. [Downloadable!]
  3. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Measuring Aid Flows: A New Approach," RES Working Papers 4146, Inter-American Development Bank, Research Department. [Downloadable!]
    Other versions:
  4. Craig Burnside & Domenico Fanizza, 2005. "Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  5. Spiegel, M.M., 1992. ""Burden Sharing" in Sovereign Debt Reduction," Working Papers 92-41, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  6. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank. [Downloadable!]
    Other versions:
  7. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Cuantificación de los flujos de asistencia: un nuevo enfoque," RES Working Papers 4147, Inter-American Development Bank, Research Department. [Downloadable!]
  8. 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!]
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