Debt Buybacks, Debt Reduction, and Debt Rescheduling under Asymmetric Information
In the early nineties there was a significant recovery of many debt-ridden economies after the shift in debt policy implicit in the so-called Brady Plan. Yet, the use of scarce resources from debtor countries to buy back part of their debts remains a controversial feature of this Plan. We use a multiperiod model of debt overhang to show that, under asymmetric information, this transfer of resources emerges naturally as part of the shift from a strategy of debt rescheduling, to one of debt reduction.
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Volume (Year): 32 (2000)
Issue (Month): 1 (February)
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