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Shortcomings in the market for developing country debt

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  • Wakeman-Linn, John

Abstract

The author recommends ways of improving incentives for developing countries to repay future loans : 1) by finding ways to increase the penalties for default, or making the penalties more certain. This would increase the debtor countries'willingness to pay, which would benefit all parties, 2) by studying how to use existing multinational and international organizations to increase the flow of relevant information to potential creditors, 3) by increasing precommitment of funds through increased penalties for default and other approaches. IMF contingency programs are already used extensively to establish some form of precommitment. Further use of international organizations along these lines may be possible. Mutually beneficial contracts are not currently possible because precommitment is not enforceable.

Suggested Citation

  • Wakeman-Linn, John, 1989. "Shortcomings in the market for developing country debt," Policy Research Working Paper Series 268, The World Bank.
    • Handle: RePEc:wbk:wbrwps:268
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    References listed on IDEAS

    as
    1. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-1089, July.
    2. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
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    5. Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 647-663.
    6. Kerry Webb, 1980. "The Farm Credit System," Economic Review, Federal Reserve Bank of Kansas City, vol. 65(Jun), pages 16-30.
    7. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
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