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Recent experience with commercial bank debt reduction

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Author Info

  • Claessens, Stijn
  • Diwan, Ishac
  • Fernandez-Arias, Eduardo

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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Bibliographic Info

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
Date of revision:
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;

References

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  1. Carmichael, Jeffrey, 1989. "The Debt Crisis: Where Do We Stand after Seven Years?," World Bank Research Observer, World Bank Group, vol. 4(2), pages 121-42, July.
  2. van Wijnbergen, Sweder, 1991. "Debt Relief and Economic Growth in Mexico," World Bank Economic Review, World Bank Group, vol. 5(3), pages 437-55, September.
  3. Lamdany, R. & Underwood, J., 1989. "Illustrative Effects Of Voluntary Debt And Debt Service Reduction Operations," World Bank - Discussion Papers 66, World Bank.
  4. Fernandez, Raquel & Ozler, Sule, 1991. "Debt concentration and secondary market prices," Policy Research Working Paper Series 570, The World Bank.
  5. 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.
  6. Fernandez-Arias, Eduardo, 1993. "Costs and benefits of debt and debt service reduction," Policy Research Working Paper Series 1169, The World Bank.
  7. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
  8. Fernandez-Arias, Eduardo, 1991. "A dynamic bargaining model of sovereign debt," Policy Research Working Paper Series 778, The World Bank.
  9. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
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Citations

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Cited by:
  1. Chang, Charles C. & Fernandez-Arias, Eduardo & Serven, Luis, 1999. "Measuring aid flows : a new approach," Policy Research Working Paper Series 2050, The World Bank.
  2. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
  3. Craig Burnside & Domenico Fanizza, 2003. "Hiccups for HIPCs," Macroeconomics 0305004, EconWPA.
  4. 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.
  5. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
  6. Klimenko, Mikhail M., 2002. "Trade interdependence, the international financial institutions, and the recent evolution of sovereign-debt renegotiations," Journal of International Economics, Elsevier, vol. 58(1), pages 177-209, October.
  7. Prokop, Jacek, 1995. "Organized debt buybacks: No cure for free riding?," Journal of Development Economics, Elsevier, vol. 47(2), pages 481-496, August.
  8. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Cuantificación de los flujos de asistencia: un nuevo enfoque," Research Department Publications 4147, Inter-American Development Bank, Research Department.
  9. 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.

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