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Secondary Market Prices and Mexico's Brady Deal

Author

Listed:
  • Stijn Claessens
  • Sweder van Wijnbergen

Abstract

The use of official funds in debt reduction packages has been widely argued to amount to a creditor bailout. We analyze this question using a case study of Mexico's 1989 Brady deal. Using an option-based pricing model, we obtain pre- and postmarket values for Mexico's commercial debt and find that the market value inclusive of official funds went up only marginally. Consequently, Mexico obtained a large share of the benefits of the official funds and struck a favorable deal. The Brady debt reduction formula thus seems to offer an efficient framework for debt workouts. Recent events in Mexico confirm that view.

Suggested Citation

  • Stijn Claessens & Sweder van Wijnbergen, 1993. "Secondary Market Prices and Mexico's Brady Deal," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 965-982.
    • Handle: RePEc:oup:qjecon:v:108:y:1993:i:4:p:965-982.
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    File URL: http://hdl.handle.net/10.2307/2118456
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    Citations

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    Cited by:

    1. Karmann, Alexander & Maltritz, Dominik, 2003. "Sovereign risk in a structural approach: Evaluating sovereign ability-to-pay and probability of default," Dresden Discussion Paper Series in Economics 07/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    2. Peter Rowland, 2004. "The Colombian Sovereign Spread and its Determinants," Borradores de Economia 315, Banco de la Republica de Colombia.
    3. Kim Oosterlinck & Loredana Ureche-Rangau, 2004. "Entre la peste et le choléra: le détenteur d'obligations peut préférer la répudiation au défaut," Working Papers CEB 04-021.RS, ULB -- Universite Libre de Bruxelles.
    4. Peter Rowland, 2005. "Buyback of Colombian Sovereign Debt," Borradores de Economia 331, Banco de la Republica de Colombia.
    5. Barbone, Luca & Forni, Lorenzo, 1997. "Are markets learning? : behavior in the secondary market for Brady bonds," Policy Research Working Paper Series 1734, The World Bank.
    6. Budina, Nina & Mantchev, Tzvetan, 2000. "Determinants of Bulgarian Brady bond prices - an empirical assessment," Policy Research Working Paper Series 2277, The World Bank.
    7. Cuddington, John T & Liang, Hong & Lu, Shihua, 1996. "Uncertainty, Trade, and Capital Flows in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 5(3), pages 192-224, October.
    8. Paul Klemperer, 2018. "Product-Mix Auction," Economics Papers 2018-W07, Economics Group, Nuffield College, University of Oxford.
    9. Peter Rowland, 2004. "The Colombian Sovereign Spread And Its Determinants," Borradores de Economia 3572, Banco de la Republica.
    10. Christiaan Kwaak & Sweder Wijnbergen, 2017. "Sovereign debt and bank fragility in Spain," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(3), pages 511-543, August.
    11. Peter Rowland, 2005. "Buyback Of Colombian Sovereign Debt," Borradores de Economia 2073, Banco de la Republica.
    12. Vogl, Konstantin & Maltritz, Dominik & Huschens, Stefan & Karmann, Alexander, 2006. "Country Default Probabilities: Assessing and Backtesting," Dresden Discussion Paper Series in Economics 12/06, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.

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