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Debt Buybacks Signal Sovereign Countries' Creditworthiness: Theory and Tests

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  • Acharya, Sankarshan
  • Diwan, Ishac

Abstract

The authors show that debt buybacks could convey valuable information about indebted countries' willingness to invest and increase debt repayment when creditors are less informed than debtors. In an informational equilibrium, unwilling countries do not repurchase a part of their debt, but willing countries do; and creditors increase debt repayments by offering reliefs only to those countries that repurchase. Data show that creditors systematically grant debt reliefs only to countries with buyback programs; and a country's secondary market debt price is higher when it has a buyback program than if it does not. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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  • Acharya, Sankarshan & Diwan, Ishac, 1993. "Debt Buybacks Signal Sovereign Countries' Creditworthiness: Theory and Tests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 795-817, November.
    • Handle: RePEc:ier:iecrev:v:34:y:1993:i:4:p:795-817
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    Cited by:

    1. Hossein Kazemi & Ayla Ogus, 2008. "The Determinants of the Secondary Market Price of Less Developed Countries’ Debt," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(2), pages 153-164, June.
    2. Nada Azmy Elberry & Frank Naert & Stijn Goeminne, 2023. "Optimal public debt composition during debt crises: A review of theoretical literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 351-376, April.
    3. Geske Dijkstra, 2013. "What Did US$18 bn Achieve? The 2005 Debt Relief to Nigeria," Development Policy Review, Overseas Development Institute, vol. 31(5), pages 553-574, September.
    4. Aizenman, Joshua & Fernandez-Ruiz, Jorge, 2006. "Signaling credibility – choosing optimal debt and international reserves," Santa Cruz Department of Economics, Working Paper Series qt2v64t0vh, Department of Economics, UC Santa Cruz.
    5. Chekir, Hamouda & Kessler, Martin & Albinet, Charles, 2024. "Debt-to-Sustainability Swaps (D2S): A Practical Framework," FDL Policy Notes 2404, CEPREMAP.
    6. Silvia Marchesi, 2006. "Buybacks of domestic debt in public debt management," The European Journal of Finance, Taylor & Francis Journals, vol. 12(5), pages 379-400.
    7. Angelo Baglioni, 2015. "Leveraged Buybacks Of Sovereign Debt: A Model And An Application To Greece," Contemporary Economic Policy, Western Economic Association International, vol. 33(1), pages 87-103, January.
    8. Hagen, Rune Jansen, 2009. "Basic analytics of multilateral lending and surveillance," Journal of International Economics, Elsevier, vol. 79(1), pages 126-136, September.
    9. Rune Hagen, 2012. "Certified or branded?," The Review of International Organizations, Springer, vol. 7(2), pages 203-230, June.

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