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Efficient debt reduction

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  • Sachs, Jeffrey

Abstract

It is now widely acknowledged that under certain circumstances debt reduction can improve the welfare of both creditors and debtors. Meaningful debt reduction requires an appropriate institutional setting to overcome collective action problems. In the domestic economy, bankruptcy laws provide the framework for organizing the collective interests of the creditors when a debtor is distressed. No such institutional framework exists in the international setting. This paper recommends"concerted debt restructuring,"based on below market interest rates, rather than"voluntary"debt reduction. With concerted relief, all banks would participate jointly on a fairly equal basis. The existing debt would be rescheduled, with the rates based on various indicators of ability to pay. The interest payments could be made more secure by various forms of credit enhancement. This kind of interest rate reduction could be easily managed in the context of an international debt facility. Whatever the approch, meaningful debt reduction will require the active participation of the international community.

Suggested Citation

  • Sachs, Jeffrey, 1989. "Efficient debt reduction," Policy Research Working Paper Series 194, The World Bank.
    • Handle: RePEc:wbk:wbrwps:194
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    References listed on IDEAS

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    1. Jeffrey D. Sachs, 1988. "Comprehensive Debt Retirement: The Bolivian Example," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 705-715.
    2. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296, National Bureau of Economic Research, Inc.
    3. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284, National Bureau of Economic Research, Inc.
    4. Sachs, J.D., 1989. "New Approaches To The Latin American Debt Crisis," Princeton Studies in International Economics 174, International Economics Section, Departement of Economics Princeton University,.
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    Cited by:

    1. Marin Ferry & Marc Raffinot, 2019. "Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(9), pages 1867-1891, September.
    2. Anna Tykhonenko & Donnat Grégory, 2022. "Debt Relief: The Day After, Financing Low-Income Countries," Post-Print hal-04298772, HAL.
    3. Conway, Patrick, 1991. "An atheoretic evaluation of success in structural adjustment," Policy Research Working Paper Series 629, The World Bank.
    4. repec:eco:journ1:2014-02-19 is not listed on IDEAS
    5. Prokop, Jacek, 1995. "Organized debt buybacks: No cure for free riding?," Journal of Development Economics, Elsevier, vol. 47(2), pages 481-496, August.
    6. Franke, Günter, 1990. "Avenues for the reduction of LDC-debt: An institutional analysis," Discussion Papers, Series II 100, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    7. M. Aslam Chaudhary & Sabahat Anwar, 2001. "Debt Laffer Curve for South Asian Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 705-720.
    8. Raffaele De Marchi, 2022. "Public debt in low-income countries: current state, restructuring challenges and lessons from the past," Questioni di Economia e Finanza (Occasional Papers) 739, Bank of Italy, Economic Research and International Relations Area.
    9. Matthew Martin, 1990. "Developing Country Debt Research: Where Do We Go From Here?," Development Policy Review, Overseas Development Institute, vol. 8(1), pages 87-96, March.

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