{
  "title": "Sovereign Debt Relief Schemes and Welfare",
  "publication": "IMF Working Papers, March 1, 1992",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/sovereign-debt-relief-schemes-and-welfare-766",
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  "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.",
  "sections": [
    {
      "heading": "Abstract / Core finding",
      "content": "- 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.\n- Whether the appropriate relief scheme involves debt reduction or new money depends on whether investment disincentives or liquidity constraints dominate.\n- Except under very special circumstances, mixed policy packages involving both debt and liquidity relief may not yield the desired results."
    },
    {
      "heading": "Key concepts and mechanisms analyzed",
      "content": "- Debt overhang and the debt Laffer curve\n- Investment disincentive effect versus liquidity constraints\n- Debt reduction schemes versus provision of new money (liquidity relief)\n- Mixed policy packages combining debt relief and liquidity relief"
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Debt reduction can improve welfare even without large investment disincentives that would push a country past the debt Laffer curve.\n- Choice of relief instrument should be driven by the dominant constraint:\n  - If investment disincentives dominate, debt reduction may be preferable.\n  - If liquidity constraints dominate, provision of new money may be preferable.\n- Mixed packages (debt relief + liquidity relief) are generally unlikely to yield desired outcomes except in very special circumstances."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subjects: Asset and liability management, Debt burden, Debt buyback arrangements, Debt reduction, Debt service, External debt, Financial crises, Liquidity\n- 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\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/sovereign-debt-relief-schemes-and-welfare-766"
    }
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    "Authors: Aasim M. Husain",
    "Published: March 1, 1992",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451920758.001",
    "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 depends on whether investment disincentives or liquidity constraints dominate.",
    "Except under very special circumstances, mixed policy packages involving both debt and liquidity relief may not yield the desired results.",
    "Debt overhang and the debt Laffer curve",
    "Investment disincentive effect versus liquidity constraints",
    "Debt reduction schemes versus provision of new money (liquidity relief)",
    "Mixed policy packages combining debt relief and liquidity relief",
    "Debt reduction can improve welfare even without large investment disincentives that would push a country past the debt Laffer curve.",
    "Choice of relief instrument should be driven by the dominant constraint:",
    "Mixed packages (debt relief + liquidity relief) are generally unlikely to yield desired outcomes except in very special circumstances.",
    "Subjects: 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"
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