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Secret "Buybacks" of LDC Debt

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  • Cohen, D.
  • Verdier, T.

Abstract

We analyse the buy-back of its debt by an LDC. Contrary to the analyses that were previously done on this subject, we assume that the debtor can hide its transactions behind the veil of a fictitious operator: the banks, we assume, cannot discriminate intra-bank transactions from buy-backs by the debtor itself. With this assumption, the lenders set the price by (rationally) taking account of the country's incentive to repurchase its debt. Will the debtor undertake a buy-back of its debt? The answer is a qualified yes. Large buy-backs will take place. With a continuum of debtors (whose cash constraints are not perfectly known to the banks), the rich debtors will attempt to repurchase as much of their debt as their cash constraint allows them to. This is shown to be Pareto-improving for both the banks and the debtor country.
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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Cohen, D. & Verdier, T., 1991. "Secret "Buybacks" of LDC Debt," DELTA Working Papers 91-18, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:91-18
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    References listed on IDEAS

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    1. Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
    2. 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.
    3. Helpman, Elhanan, 1989. "The Simple Analytics of Debt-Equity Swaps," American Economic Review, American Economic Association, vol. 79(3), pages 440-451, June.
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    Cited by:

    1. Rohan Pitchford & Mark L. J. Wright, 2012. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 812-837.
    2. 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.

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    Keywords

    debt ; developing countries;

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