IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/2850.html
   My bibliography  Save this paper

Sovereign Debt Repurchases: No Cure for Overhang

Author

Listed:
  • Jeremy Bulow
  • Kenneth Rogoff

Abstract

We show, in a reasonably general model, that if a highly indebted country has good investment projects available to it, then it will not benefit from using any of its resources to buy back debt at market prices. Debt buybacks and debt-equity swaps only make sense for the country if these programs are heavily subsidized by creditors. This result holds for all buyback programs large and small, so long as they involve voluntary creditor participation and are not part of a larger deal including offsetting concessions from lenders. Our analysis therefore casts doubt on the popular argument that unilateral debt repurchases benefit HICs by relieving "debt overhang".

Suggested Citation

  • Jeremy Bulow & Kenneth Rogoff, 1989. "Sovereign Debt Repurchases: No Cure for Overhang," NBER Working Papers 2850, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2850
    Note: ME ITI IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w2850.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
    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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oladi, Reza, 2003. "International involuntary lending and contingent default threat," International Review of Economics & Finance, Elsevier, vol. 12(2), pages 237-245.
    2. Goopu, Sudarshan, 1996. "The analysis of emerging policy issues in development finance," Policy Research Working Paper Series 1589, The World Bank.
    3. Schioppa, Claudio A. & Papadia, Andrea, 2015. "Foreign Debt and Secondary Markets: The Case of Interwar Germany," MPRA Paper 102863, University Library of Munich, Germany, revised 2016.
    4. Cabral, Celia C., 1996. "Evaluating debt repurchases What are the alternatives to investment?," Journal of International Economics, Elsevier, vol. 40(3-4), pages 477-494, May.
    5. Gooptu, Sudarshan, 1996. "Emerging policy issues in development finance," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(Supplemen), pages 85-100.
    6. Sule Ozler & Harry Huizinga, 1992. "Bank Exposure, Capital and Secondary Market Discounts on the Developing Country Debt," NBER Working Papers 3961, National Bureau of Economic Research, Inc.
    7. Jean-Noël Ory, 1996. "Le financement des PVD par euro-obligations : rôle des procédures de réduction de dette et de desserrement des contraintes," Revue Tiers Monde, Programme National Persée, vol. 37(148), pages 829-852.
    8. Michael P. Dooley, 1994. "A Retrospective on the Debt Crisis," NBER Working Papers 4963, National Bureau of Economic Research, Inc.
    9. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
    10. Magdalena Polan & Parmeshwar Ramlogan & Carlos I. Medeiros, 2007. "A Primer on Sovereign Debt Buybacks and Swaps," IMF Working Papers 2007/058, International Monetary Fund.
    11. Spiegel, Mark M., 1996. ""Burden sharing" in sovereign debt reduction," Journal of Development Economics, Elsevier, vol. 50(2), pages 337-351, August.
    12. Peter Rowland, 2005. "Buyback of Colombian Sovereign Debt," Borradores de Economia 331, Banco de la Republica de Colombia.
    13. Danny Cassimon & Dennis Essers & Achmad Fauzi, 2014. "Indonesia's Debt-for-Development Swaps: Past, Present, and Future," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(1), pages 75-100, April.
    14. Siddique, Abu & Selvanathan, E.A. & Selvanathan, Saroja, 2016. "The impact of external debt on growth: Evidence from highly indebted poor countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 874-894.
    15. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, vol. 52(1), pages 169-187, February.
    16. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-1555, September.
    17. Goldberg, Linda & Spiegel, Mark M., 1992. "Debt write-downs and debt--equity swaps in a two-sector model," Journal of International Economics, Elsevier, vol. 33(3-4), pages 267-283, November.
    18. Fluck, Zsuzsanna, 1999. "The Dynamics of the Management-Shareholder Conflict," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 379-404.
    19. Seon Tae Kim & Gabriel Mihalache & Yan Bai, 2014. "Maturity and Repayment Structure of Sovereign Debt," 2014 Meeting Papers 523, Society for Economic Dynamics.
    20. Juan Carlos Hatchondo & Leonardo Martinez & César Sosa-Padilla, 2016. "Debt Dilution and Sovereign Default Risk," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1383-1422.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2850. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.