Debt Reduction and New Loans: A Contracting Perspective

Aasim Husain, John Carlson and Jeffrey Zimmerman

No 1997/095, IMF Working Papers from International Monetary Fund

Abstract: International debt contracts can incorporate—at least implicitly—contingencies governing debt reduction. This paper examines a series of debt contracts that allow for the possibility of rescheduling, forgiveness, and rescheduling with forgiveness. The contract with both rescheduling and forgiveness permits a higher credit ceiling than other types of debt contracts, and contains features found in the HIPC and other recent debt reduction initiatives. If an adverse state of nature occurs, some of the debt is forgiven, a portion is rescheduled, and the remainder is repaid. At the same time, the debtor country is a net recipient of new loans.

Keywords: WP; interest rate (search for similar items in EconPapers)
Pages: 24
Date: 1997-08-01
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