How the Brady Plan Delivered on Debt Relief: Lessons and Implications

December 15, 2023

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Neil Shenai, and Marijn A. Bolhuis How the Brady Plan Delivered on Debt Relief: Lessons and Implications, (USA: International Monetary Fund, 2023) accessed November 5, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Rising debt vulnerabilities in low- and middle-income countries have rekindled interest in a Brady Plan-style mechanism to facilitate debt restructurings. To inform this debate, this paper analyzes the impact of the original Brady Plan by comparing macroeconomic outcomes of 10 Brady countries to 40 other emerging markets and developing economies. The paper finds that following the first Brady restructuring in 1990, Brady countries experienced substantial declines in public and external debt burdens and a sharp pick-up in output and productivity growth, anchored by a comparatively strong structural reform effort. The impact of the Brady Plan on overall debt burdens was many times greater than initial face value reductions, indicating the existence of a “Brady multiplier.” Brady restructurings took longer to complete than non-Brady restructurings. Today, similar mechanisms could be helpful in delivering meaningful debt stock reduction when solvency challenges are acute, but Brady-style mechanisms alone would not solve existing challenges in the sovereign debt landscape, including those related to creditor coordination, domestic barriers to economic reforms, and the increased prevalence of domestic debt, among others.

Subject: Asset and liability management, Debt Relief, Debt restructuring, External debt, Macrostructural analysis, Public debt, Structural reforms

Keywords: Brady country, Brady deal, Brady Plan, Caribbean, Debt relief, Debt restructuring, Debt sustainability, Differences-in-differences, Global, IMF program performance, IMF working paper 23/258, Sovereign debt restructuring, Stock reduction, Structural reforms, Synthetic control method

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/258
Stock No:

WPIEA2023258
ISBN:

9798400262685
ISSN:

1018-5941

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