Voluntary Conversions of LDC Debt

Paul DiLeo and Eli Remolona

Chapter 3 in International Finance and the Less Developed Countries, 1990, pp 70-97 from Palgrave Macmillan

Abstract: Abstract We estimate that out of a total of $23 billion in LDC debt conversions in 1988, there was a reduction of $8.5 billion in foreign liabilities. We argue, however, that the need for debt reduction is not what has been driving these market-based schemes. We think the debt conversions stem largely from the advantages to creditor banks of restructuring their relative exposures given the fact that different banks have different perceptions of return on LDC debt. We show that even without incentive effects on the debtor country, creditor banks will gain from debt-equity swaps, while the debtor country may or may not gain. In contrast, the debtor country will gain from exit-bond exchanges, while the banks may or may not gain.

Keywords: Secondary Market; Creditor Bank; Small Bank; Foreign Debt; Generally Accept Accounting Principle (search for similar items in EconPapers)
Date: 1990
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Working Paper: Voluntary conversions of LDC debt (1989)
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DOI: 10.1007/978-1-349-10379-9_4

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