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Buyback of Colombian Sovereign Debt

  • Peter Rowland

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    At a request from the Ministry of Finance, Banco de la República last year carried out an investigation into the feasibility to use parts of the foreign reserves to buy back some of Colombia’s outstanding sovereign U.S.-dollar debt. This project resulted in two thorough technical reports. This paper aims to complement these reports by a general discussion on the subject. Even if many economists will find the discussion and the empirical results interesting, the main target group of the paper is professionals and policy makers without a background in Economics or Finance. The paper discusses emerging market debt in general, the Colombian debt in particular, and the current level of the Colombian foreign reserves. It, thereafter, continues by discussing buyback of sovereign debt, and what a country could gain or lose from such a buyback and why. The paper also includes a cross-country empirical analysis of the relationship between the sovereign spread of the outstanding debt of a country and its foreign reserve levels.

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    Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 331.

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    Handle: RePEc:bdr:borrec:331
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    1. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
    2. Hajivassiliou, V. A., 1989. "Do the secondary markets believe in life after debt?," Policy Research Working Paper Series 252, The World Bank.
    3. Budina, Nina & Mantchev, Tzvetan, 2000. "Determinants of Bulgarian Brady bond prices - an empirical assessment," Policy Research Working Paper Series 2277, The World Bank.
    4. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
    5. Peter Rowland & José Luis Torres, . "Determinants of Spread and Creditworthiness for Emerging Market Sovereign Debt:A Panel Data Study," Borradores de Economia 295, Banco de la Republica de Colombia.
    6. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-78, February.
    7. Claessens, Stijn & van Wijnbergen, Sweder, 1993. "Secondary Market Prices and Mexico's Brady Deal," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 967-82, November.
    8. António Afonso, 2002. "Understanding the Determinants of Government Debt Ratings: Evidence for the Two Leading Agencies," Working Papers Department of Economics 2002/02, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    9. Mody, Ashoka & Yuko Kinoshita, 1997. "The usefulness of private and public information for foreign investment decisions," Policy Research Working Paper Series 1733, The World Bank.
    10. Eaton, Jonathan & Taylor, Lance, 1986. "Developing country finance and debt," Journal of Development Economics, Elsevier, vol. 22(1), pages 209-265, June.
    11. Álvaro Rojas O. & Felipe Jaque S., 2003. "Determinants of the Chilean Sovereign Spread: is it Purely Fundamentals?," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 137-163, July-Dece.
    12. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
    13. 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.
    14. Jeremy Bulow & Kenneth Rogoff, 1988. "The Buyback Boondoggle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 675-704.
    15. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
    16. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
    17. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    18. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    19. Peter Rowland, 2004. "The Colombian Sovereign Spread And Its Determinants," BORRADORES DE ECONOMIA 003572, BANCO DE LA REPÚBLICA.
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