Debt Reduction and New Loans : A Contracting Perspective

Author/Editor:

Aasim M. Husain ; John A. Carlson ; Jeffrey A. Zimmerman

Publication Date:

August 1, 1997

Electronic Access:

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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:

International debt contracts can incorporate—at least implicitly—contingencies governing debt reduction. This paper examines a series of debt contracts that allow for the possibility of rescheduling, forgiveness, and rescheduling with forgiveness. The contract with both rescheduling and forgiveness permits a higher credit ceiling than other types of debt contracts, and contains features found in the HIPC and other recent debt reduction initiatives. If an adverse state of nature occurs, some of the debt is forgiven, a portion is rescheduled, and the remainder is repaid. At the same time, the debtor country is a net recipient of new loans.

Series:

Working Paper No. 97/95

English

Publication Date:

August 1, 1997

ISBN/ISSN:

9781451851786/1018-5941

Stock No:

WPIEA0951997

Format:

Paper

Pages:

24

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