Article: Debt Buybacks, Debt Reduction, and Debt Rescheduling under Asymmetric Information.

AFTER NEARLY A DECADE OF SUFFERING from debt-ridden economies, in the early nineties many countries with large external debts finally reduced their debt-service ratios, regained access to spontaneous private financing and achieved higher growth and lower inflation (IMF 1993). Many analysts have since attributed at least part of this success to the shift in the international debt strategy in 1989 which took a new direction with the so-called Brady initiative.(1) A rather controversial feature of this initiative was the use of scarce resources from the debtor countries to buy back part of their debt.

There are two reasons why this use of a country's resources seems unwise. ...

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