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Debt Relief: What Do the Markets Think?

  • Serkan Arslanalp
  • Peter Blair Henry

The stock market appreciates by an average of 60 percent in real dollar terms when countries announce debt relief agreements under the Brady Plan. In contrast, there is no significant increase in market value for a control group of countries that do not sign agreements. The results persist after controlling for IMF agreements, trade liberalizations, capital account liberalizations, and privatization programs. The stock market revaluations forecast higher future net resource transfers and GDP growth. While markets respond favorably to debt relief in the Brady countries, there is no evidence to suggest that current debt relief efforts for the Highly-Indebted Poor Countries (HIPCs) will achieve similar results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9369.

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Date of creation: Dec 2002
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Handle: RePEc:nbr:nberwo:9369
Note: CF IFM
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