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Voluntary Conversions of LDC Debt

In: International Finance and the Less Developed Countries

Author

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  • Paul DiLeo
  • Eli M. Remolona

Abstract

We estimate that out of a total of $23 billion in LDC debt conversions in 1988, there was a reduction of $8.5 billion in foreign liabilities. We argue, however, that the need for debt reduction is not what has been driving these market-based schemes. We think the debt conversions stem largely from the advantages to creditor banks of restructuring their relative exposures given the fact that different banks have different perceptions of return on LDC debt. We show that even without incentive effects on the debtor country, creditor banks will gain from debt-equity swaps, while the debtor country may or may not gain. In contrast, the debtor country will gain from exit-bond exchanges, while the banks may or may not gain.

Suggested Citation

  • Paul DiLeo & Eli M. Remolona, 1990. "Voluntary Conversions of LDC Debt," Palgrave Macmillan Books, in: Kate Phylaktis & Mahmood Pradhan (ed.), International Finance and the Less Developed Countries, chapter 3, pages 70-97, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-10379-9_4
    DOI: 10.1007/978-1-349-10379-9_4
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    Cited by:

    1. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
    2. Agarwal, Jamuna Prasad & Gubitz, Andrea & Nunnenkamp, Peter, 1991. "Foreign direct investment in developing countries: the case of Germany," Open Access Publications from Kiel Institute for the World Economy 423, Kiel Institute for the World Economy (IfW Kiel).

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