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Recent experience with commercial bank debt reduction

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  • Claessens,Constantijn A.*Diwan, Ishac*Fernandez-

Abstract

The authors review the case for market-based debt reduction and concerted debt reduction. They explain the new menu-based approach to debt reduction and discuss why it may be preferred to market-based and concerted debt reduction. In a review of the five recent debt-reduction agreements, they find that the menu approach indeed achieved debt reduction at substantially lower costs than a comparable market-based operation. By one measure, the five countries may have saved more than $8 billion. Even a menu-based approach to debt reduction, however, is unlikely to directly benefit the debtor financially. They find that the debtors suffered financial losses equal to a few percent of their GDPs. Indirect benefits, or efficiency gains associated with debt reduction, are necessary to make the operation benefit the debtor.

Suggested Citation

  • Claessens,Constantijn A.*Diwan, Ishac*Fernandez-, 1992. "Recent experience with commercial bank debt reduction," Policy Research Working Paper Series 995, The World Bank.
  • Handle: RePEc:wbk:wbrwps:995
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    References listed on IDEAS

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    1. Lamdany, R. & Underwood, J., 1989. "Illustrative Effects Of Voluntary Debt And Debt Service Reduction Operations," World Bank - Discussion Papers 66, World Bank.
    2. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    3. Fernandez-Arias, Eduardo, 1991. "A dynamic bargaining model of sovereign debt," Policy Research Working Paper Series 778, The World Bank.
    4. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    5. van Wijnbergen, Sweder, 1991. "Debt Relief and Economic Growth in Mexico," World Bank Economic Review, World Bank Group, vol. 5(3), pages 437-455, September.
    6. Fernandez-Arias, Eduardo, 1993. "Costs and benefits of debt and debt service reduction," Policy Research Working Paper Series 1169, The World Bank.
    7. Fernandez, Raquel & Ozler, Sule, 1991. "Debt concentration and secondary market prices," Policy Research Working Paper Series 570, The World Bank.
    8. Claessens, Stijn & van Wijnbergen, Sweder, 1990. "An option - pricing approach to secondary market debt : applied to Mexico," Policy Research Working Paper Series 333, The World Bank.
    9. Carmichael, Jeffrey, 1989. "The Debt Crisis: Where Do We Stand after Seven Years?," World Bank Research Observer, World Bank Group, vol. 4(2), pages 121-142, July.
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    Citations

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    Cited by:

    1. repec:bep:maccon:v:5:y:2005:i:1:p:1133-1133 is not listed on IDEAS
    2. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Measuring Aid Flows: A New Approach," Research Department Publications 4146, Inter-American Development Bank, Research Department.
    3. Klimenko, Mikhail M., 2002. "Trade interdependence, the international financial institutions, and the recent evolution of sovereign-debt renegotiations," Journal of International Economics, Elsevier, vol. 58(1), pages 177-209, October.
    4. Burnside, Craig & Fanizza, Domenico, 2001. "Hiccups for HIPCs?," WIDER Working Paper Series 099, World Institute for Development Economic Research (UNU-WIDER).
    5. Michael P. Dooley, 1994. "A Retrospective on the Debt Crisis," NBER Working Papers 4963, National Bureau of Economic Research, Inc.
    6. Spiegel, Mark M., 1996. ""Burden sharing" in sovereign debt reduction," Journal of Development Economics, Elsevier, vol. 50(2), pages 337-351, August.
    7. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
    8. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank.
    9. Prokop, Jacek, 1995. "Organized debt buybacks: No cure for free riding?," Journal of Development Economics, Elsevier, vol. 47(2), pages 481-496, August.
    10. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Cuantificación de los flujos de asistencia: un nuevo enfoque," Research Department Publications 4147, Inter-American Development Bank, Research Department.
    11. Bulow, Jeremy & Rogoff, Kenneth & Ning S. Zhu & DEC & a descri & Buyback arrangements, 1994. "Estimating the efficiency gains of debt restructuring," Policy Research Working Paper Series 1317, The World Bank.
    12. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
    13. repec:bpj:bejmac:v:5:y:2005:i:1:p:1133-1133 is not listed on IDEAS

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