 Wealth effects of voluntary debt reduction in Latin AmericaDaniel Oks () No 391, Policy Research Working Paper Series from The World Bank Abstract: This paper formulates a multisectoral accounting framework to assess the potential effects on perceived private wealth of alternative schemes for voluntary debt reduction. Swaps of private equity for public foreign debt increase private wealth when private agents behave ultrarationally, that is, when they regard public foreign debt as discounted future taxes, and when their subjective valuation of foreign debt exeeds its redemption price. With direct buybacks and collateralized debt conversions, private wealth increases when agents behave ultrarationally and their subjective valuation of debt is higher than secondary market prices. Using this framework to examine recent experience in Brazil, Chile and Mexico, the paper concludes that the surge in consumption-GNP ratios - along with record levels of voluntary debt reduction in Brazil, Chile and Mexico in 1988 - is consistent with the hypotheses that private agents have behaved ultrarationally and have valued foreign sector liabilities at more than redemption/secondary market prices. Keywords: Economic Theory&Research; Environmental Economics&Policies; Strategic Debt Management; Banks&Banking Reform; Financial Intermediation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:391 Access Statistics for this paper More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.