LDC Debt in the 1980s: Risk and Reforms
With the rapid increase in LDC indebtedness in the recent decade, the issues of creditworthiness and country risk have gained new importance. This paper offers a theoretical and historical analysis of international capital markets in the presence of default risk. The theoretical model suggests the possibility of a prisoners' dilemma in the loan market, in which a country's dominant noncooperative strategy is to default, though a welfare-improving cooperative strategy is available. The historical analysis suggests that the IMF may play a key role in guiding creditors and debtor nations to reach cooperative solutions.
|Date of creation:||Feb 1982|
|Date of revision:|
|Publication status:||published as LDC Debt: Problems and Prospects", P. Watchel Ed., Crisis in Economic and Financial Structure, (Lexington Books, 1982)|
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- 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.
- Ulrich Baumgartner & G. G. Johnson & K. Burke Dillon & R. C. Williams & Peter Keller & Maria Tyler & Bahram Nowzad & G. Russell Kincaid & TomÃ¡s Reichmann, 1981. "External Indebtedness of Developing Countries," IMF Occasional Papers 3, International Monetary Fund.
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