A Delicate Equilibrium: Debt Relief and Default Penalties in an International Context

International Monetary Fund

No 1989/010, IMF Working Papers from International Monetary Fund

Abstract: Debt relief and penalties are discussed in connection with sovereign-country loans. We focus on conditions for the existence of penalties that are too low for ensuring Pareto efficiency, and show the possible time inconsistency of optimal debt contracts. A methodology for ascertaining debt relief implicit in international loans is outlined.

Keywords: WP; loan contract; rate of interest; risk premium; loan repayment; borrower default; loan market; debt contract; opportunity cost; Debt relief; Loans; Debt default; Personal income; Income inequality; Global (search for similar items in EconPapers)
Pages: 28
Date: 1989-01-01
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Citations: View citations in EconPapers (3)

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