Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief
We compare various forms of market-based debt relief with coordinated debt forgiveness on the part of creditors. These schemes lead to different allocations of resources and levels of debtor and creditor welfare, but all attempt to stimulate debtor investment through reductions in the level of debt. If investment-incentive effects are present, then investment in liquidity-constrained debtors will respond by enough to make a reduction in debt profitable, but not by enough to make the reduction in debt optimal. For these countries the optimal debt-relief package (from the creditors perspective) will include an infusion of new lending.
|Date of creation:||Aug 1988|
|Date of revision:|
|Publication status:||published as Froot, Ken. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," from International Economic Review, Vol. 30, No. 1, pp. 49-70,(February 1989).translated into Spanish in: Estudios Economicos, 4 (July 1989), pp 31-60.|
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- Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
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2541, National Bureau of Economic Research, Inc.
- Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1989. " LDC Debt: Forgiveness, Indexation, and Investment Incentives," Journal of Finance, American Finance Association, vol. 44(5), pages 1335-50, December.
- Jeffrey Sachs, 1988. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Working Papers 2644, National Bureau of Economic Research, Inc.
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- Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
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