Working Paper: CEPR ID: DP460
Authors: Daniel Cohen
Abstract: This paper gives a valuation formula for LDC debt that is used to assess: i) the price at which a buy-back of the debt is advantageous to the country (we shall see that it is likely to be half the observed market price); ii) the value to the creditors of having the flows of payment guaranteed against the extrinsic stochastic disturbance faced by the country (we shall see that it may not exceed 25%); iii) the trade-off between growth of payments and levels of payments (we show that a 1% additional growth rate is worth a 15% increase of the flows). We offer finally an assessment of the Mexican agreement reached in early 1990.
Keywords: ldc debt; balance of payments
JEL Codes: 310; 430
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observed market price (D41) | advantageous buyback price (G34) |
| guarantee of payment flows (E50) | value to creditors (G32) |
| growth rate (O40) | reduction in current payments (F32) |