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A Primer on Sovereign Debt Buybacks and Swaps

  • Magdalena Polan
  • Parmeshwar Ramlogan
  • Carlos I. Medeiros
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    This paper sets forth some basic principles that could help debt managers in emerging market and other countries to plan and implement sovereign debt buyback and swap operations. It discusses the macroeconomic context in which buybacks and swaps are undertaken, the objectives of buybacks and swaps, the analytical framework for deciding whether to undertake a particular buyback or swap operation and for selecting among alternative operations, and some key issues in the determination of the strategy for executing buybacks and swaps. The focus is on developing the analytical framework for evaluating sovereign debt buyback and swap operations, since very little work has been done in this area. In this regard, the paper presents a step-wise decision-making procedure, in which discounted cash flow analysis and the use of strategic benchmarks for the debt play central roles.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/58.

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    Length: 49
    Date of creation: 01 Mar 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/58
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    1. Andrew Ang & Jun Liu, 2003. "How to Discount Cashflows with Time-Varying Expected Returns," NBER Working Papers 10042, National Bureau of Economic Research, Inc.
    2. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    3. Jeremy Bulow & Kenneth Rogoff, 1989. "Sovereign Debt Repurchases: No Cure for Overhang," NBER Working Papers 2850, National Bureau of Economic Research, Inc.
    4. Oswald D. Bowlin, 1966. "The Refunding Decision: Another Special Case In Capital Budgeting," Journal of Finance, American Finance Association, vol. 21(1), pages 55-68, 03.
    5. Paul R. Krugman, 1988. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
    6. 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.
    7. Michael G. Papaioannou, 2006. "A Primer for Risk Measurement of Bonded Debt from the Perspective of a Sovereign Debt Manager," IMF Working Papers 06/195, International Monetary Fund.
    8. Graeme Wheeler, 2004. "Sound Practice in Government Debt Management," World Bank Publications, The World Bank, number 15017, November.
    9. Jonathan P. Thomas, 2001. "Default Costs, Willingness to Pay and Sovereign Debt Buybacks," International Finance 0103002, EconWPA.
    10. repec:pal:imfstp:v::y:2006:i:si:p:7 is not listed on IDEAS
    11. Hausmann, Ricardo & Panizza, Ugo, 2003. "On the determinants of Original Sin: an empirical investigation," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 957-990, December.
    12. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," NBER Working Papers 12552, National Bureau of Economic Research, Inc.
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