IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/2587.html
   My bibliography  Save this paper

Market-Based Debt-Reduction Schemes

Author

Listed:
  • Paul R. Krugman

Abstract

Recently much attention has been given to the idea of reducing the debt of developing countries through a "menu approach" of schemes that attempt to harness the discounts on debt in the secondary market. This paper, after reviewing the rationale for the orthodox strategy of concerted lending and the case for debt forgiveness, examines the logic behind several market-based debt reduction schemes. It shows that such schemes will ordinarily benefit both debtor and creditor only when the debtor is on the wrong side of the "debt relief Laffer curve" -- that is, where a reduction in nominal claims actually increases expected payment. This is, however, also the case in which unilateral debt forgiveness is in the interest of creditors in any case. The implication is that there is no magic in market-based debt reduction, as opposed to more straightforward approaches.

Suggested Citation

  • Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2587
    Note: ITI IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w2587.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rudiger Dornbusch & Thomas S. Johnson & Anne O. Krueger, 1988. "Our LDC Debts," NBER Chapters, in: The United States in the World Economy, pages 161-214, National Bureau of Economic Research, Inc.
    2. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    3. Martin Feldstein, 1986. "International Debt Service and Economic Growth: Some Simple Analytics," NBER Working Papers 2076, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paul R. Krugman, 1989. "Private Capital Flows to Problem Debtors," NBER Chapters, in: Developing Country Debt and the World Economy, pages 285-298, National Bureau of Economic Research, Inc.
    2. Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
    3. Turvey, Calum G. & Chantarat, Sommarat, 2006. "Weather-Linked Bonds," 2006 Agricultural and Rural Finance Markets in Transition, October 2-3, 2006, Washington, DC 133091, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    4. Joseph Atta-Mensah, 2004. "Commodity-Linked Bonds: A Potential Means for Less-Developed Countries to Raise Foreign Capital," Staff Working Papers 04-20, Bank of Canada.
    5. Tilemahos Efthimiadis & Panagiotis Tsintzos, 2012. "The Internal-External Debt Ratio and Economic Growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 941-951.
    6. Danny Cassimon & Dennis Essers & Karel Verbeke, 2015. "What to do after the clean slate? Post-relief public debt sustainability and management," BeFinD Working Papers 0103, University of Namur, Department of Economics.
    7. İbrahim Özmen & Mihai Mutascu, 2024. "Public Debt and Growth: New Insights," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8706-8736, June.
    8. Claudio Raddatz, 2011. "Multilateral Debt Relief through the Eyes of Financial Markets," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1262-1288, November.
    9. Spiegel, Mark M., 1996. ""Burden sharing" in sovereign debt reduction," Journal of Development Economics, Elsevier, vol. 50(2), pages 337-351, August.
    10. Siddique, Abu & Selvanathan, E.A. & Selvanathan, Saroja, 2016. "The impact of external debt on growth: Evidence from highly indebted poor countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 874-894.
    11. Silvia Marchesi & Tania Masi, 2019. "Sovereign risk after sovereign restructuring. Private and official default," Working Papers 423, University of Milano-Bicocca, Department of Economics, revised Nov 2019.
    12. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
    13. Johansson, Pernilla, 2009. "Grants to needy countries? A study of aid composition between 1975 and 2005," Working Papers 2009:19, Lund University, Department of Economics.
    14. Serhan ÇIFTÇIOĞLU & Amin SOKHANVAR, 2018. "External Debt- Economic Growth Nexus in Selected CEE Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 85-100, December.
    15. Naeem AKRAM*, 2017. "Role of Public Debt in Economic Growth of Sri Lanka: An ARDL Approach," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(2), pages 189-212.
    16. Kaminsky, Graciela L. & Pereira, Alfredo, 1996. "The debt crisis: lessons of the 1980s for the 1990s," Journal of Development Economics, Elsevier, vol. 50(1), pages 1-24, June.
    17. HERRERO-OLARTE, Susana, 2024. "Productivity And Regional Trade, The Relationship In South America," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 24(1), pages 37-56.
    18. Sharafat, Ali & Hamid, Waqas & Muhammad, Asghar & Raheel Abbas, Kalroo & Muhammad, Ayaz & Mukhtyar, Khan, 2013. "Foreign Capital and Investment in Pakistan: A Cointegration and Causality Analysis," MPRA Paper 55640, University Library of Munich, Germany, revised 28 Apr 2013.
    19. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank.
    20. White, Lucy & Walther, Ansgar, 2019. "Rules versus Discretion in Bank Resolution," CEPR Discussion Papers 14048, C.E.P.R. Discussion Papers.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2587. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.