Sovereign Debt Relief Schemes and Welfare
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.
Series:
Working Paper No. 1992/025
Subject:
Asset and liability management Debt burden Debt buyback arrangements Debt reduction Debt service External debt Financial crises Liquidity
English
Publication Date:
March 1, 1992
ISBN/ISSN:
9781451920758/1018-5941
Stock No:
WPIEA0251992
Pages:
20
Please address any questions about this title to publications@imf.org