Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief
The author compares forms of market-based debt relief with coordinated debt forgiveness on the part of creditors. Debtors benefit from these schemes to the extent that expected payments fall, but lose to the extent that they sacrifice current resources. Creditors' benefit when the buyback resources are "additional," and when debt reduction creates greater incentives for full repayment. The source of buyback resources is a critical determinant in assessing potential welfare gains. For liquidity-constrained debtors, debt reduction is not optimal for debtors or creditors. For these countries, the optimal debt-relief package (from the creditors' perspective) will include an infusion of new lending. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Volume (Year): 30 (1989)
Issue (Month): 1 (February)
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- Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1989.
" LDC Debt: Forgiveness, Indexation, and Investment Incentives,"
Journal of Finance,
American Finance Association, vol. 44(5), pages 1335-50, December.
- Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1988. "LDC Debt: Forgiveness, Indexation, and Investment Incentives," NBER Working Papers 2541, National Bureau of Economic Research, Inc.
- Paul R. Krugman, 1988.
"Financing vs. Forgiving a Debt Overhang,"
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- Rudiger Dornbusch, 1987.
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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.
- 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, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
- Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
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