Secondary Market Prices and Mexico's Brady Deal
Stijn Claessens (stijn.claessens@yale.edu) and
Sweder van Wijnbergen
The Quarterly Journal of Economics, 1993, vol. 108, issue 4, 965-982
Abstract:
The use of official funds in debt reduction packages has been widely argued to amount to a creditor bailout. We analyze this question using a case study of Mexico's 1989 Brady deal. Using an option-based pricing model, we obtain pre- and postmarket values for Mexico's commercial debt and find that the market value inclusive of official funds went up only marginally. Consequently, Mexico obtained a large share of the benefits of the official funds and struck a favorable deal. The Brady debt reduction formula thus seems to offer an efficient framework for debt workouts. Recent events in Mexico confirm that view.
Date: 1993
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