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Mexico's external debt restructuring in 1989-90

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  • van Wijnbergen, Sweder

Abstract

The subject of this paper is the agreement reached on July 23, 1989 which offered commercial creditors the choice to exchange old debt instruments for new instruments involving debt relief, but partially secured with collateral; or for unsecured instruments without debt relief, but with a new money commitment attached. This paper outlines the main course of economic developments in Mexico leading up to the agreement. It also provides an overview of the economic considerations underlying the structure of the agreement finally reached, and a detailed description of that agreement. The paper also assesses the amount of debt relief, and asks the question whether this amount of debt relief represents a good return on the resources devoted to the deal. It provides an assessment of the market value of all outstanding commercial claims on Mexico before and after the deal by third parties and by Mexico itself, to creditors choosing one of the debt relief options. The paper looks at the likely impact on the recovery of economic growth in Mexico by first assessing the impact of the deal on Mexico's financing gap and then by using a quantitative framework developed for this purpose to assess the likely impact of the deal on Mexico's prospects for a recovery of economic growth.

Suggested Citation

  • van Wijnbergen, Sweder, 1990. "Mexico's external debt restructuring in 1989-90," Policy Research Working Paper Series 424, The World Bank.
    • Handle: RePEc:wbk:wbrwps:424
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    References listed on IDEAS

    as
    1. Cohen, Daniel, 1993. "A valuation formula for LDC debt," Journal of International Economics, Elsevier, vol. 34(1-2), pages 167-180, February.
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    3. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
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    Cited by:

    1. Diwan, Ishac & Kletzer, Ken, 1990. "Voluntary choices in concerted deals : mechanics and attributes of the menu approach," Policy Research Working Paper Series 527, The World Bank.

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