Citation

Discussion Paper Details

Please find the details for DP312 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Debt Relief and Secondary Market Discount

Author(s): Daniel Cohen

Publication Date: April 1989

Keyword(s): Buy-back, Debt, Developing Countries and Secondary Market

Programme Area(s): International Macroeconomics

Abstract: This paper analyzes the inefficiency that arises from a debt overhang. In order to define the lenders' optimal rescheduling strategy, I calculate the maximum present discounted value of the repayment they could obtain. This upper bound occurs when the borrower gives up sovereignty over all decisions except to default. To secure the maximum, however, the lenders do not simply extract a payment equal to the cost of default, but allows the country to invest more. The maximum present discounted value return coincides with the equilibrium market value of the debt. Rather than a debt write-off, the key to an efficient rescheduling process is a clear commitment from the lenders that the flow of resources they will ask the debtor to transfer will reflect the secondary market discou.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=312

Bibliographic Reference

Cohen, D. 1989. 'Debt Relief and Secondary Market Discount'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=312