How the Brady Plan Delivered on Debt Relief: Lessons and Implications

Neil Shenai and Marijn Bolhuis

No 2023/258, IMF Working Papers from International Monetary Fund

Abstract: Rising debt vulnerabilities in low- and middle-income countries have rekindled interest in a Brady Plan-style mechanism to facilitate debt restructurings. To inform this debate, this paper analyzes the impact of the original Brady Plan by comparing macroeconomic outcomes of 10 Brady countries to 40 other emerging markets and developing economies. The paper finds that following the first Brady restructuring in 1990, Brady countries experienced substantial declines in public and external debt burdens and a sharp pick-up in output and productivity growth, anchored by a comparatively strong structural reform effort. The impact of the Brady Plan on overall debt burdens was many times greater than initial face value reductions, indicating the existence of a “Brady multiplier.” Brady restructurings took longer to complete than non-Brady restructurings. Today, similar mechanisms could be helpful in delivering meaningful debt stock reduction when solvency challenges are acute, but Brady-style mechanisms alone would not solve existing challenges in the sovereign debt landscape, including those related to creditor coordination, domestic barriers to economic reforms, and the increased prevalence of domestic debt, among others.

Keywords: Brady Plan; sovereign debt restructuring; debt relief; debt sustainability; differences-in-differences; synthetic control method; stock reduction; Brady deal; IMF program performance; IMF working paper 23/258; Brady country; Debt restructuring; Structural reforms; Caribbean; Global (search for similar items in EconPapers)
Pages: 44
Date: 2023-12-15
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