Sovereign Debt Relief Schemes and Welfare

March 1, 1992

Preview Citation

Format: Chicago

Aasim M. Husain Sovereign Debt Relief Schemes and Welfare, (USA: International Monetary Fund, 1992) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper shows that concerted debt reduction may be welfare-improving even when the investment disincentive effect of a debt overhang is not large enough to place the debtor country on the wrong side of the debt Laffer curve. Whether the appropriate relief scheme involves debt reduction or new money, however, depends on whether investment disincentives or liquidity constraints dominate. It is shown that, except under very special circumstances, mixed policy packages involving both debt and liquidity relief may not yield the desired results.

Subject: Asset and liability management, Debt burden, Debt buyback arrangements, Debt reduction, Debt service, External debt, Financial crises, Liquidity

Keywords: Competitive market debt buyback, Debt burden, Debt buyback arrangements, Debt buyback scheme, Debt claim, Debt Laffer curve, Debt obligation, Debt overhang effect, Debt reduction, Debtor country, Debtor country government, Disincentive effect, Liquidity, Liquidity effect, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1992/025
Stock No:

WPIEA0251992
ISBN:

9781451920758
ISSN:

1018-5941

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