Sovereign Debt Relief Schemes and Welfare

Author/Editor:

Aasim M. Husain

Publication Date:

March 1, 1992

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.

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

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