Sovereign Debt Repurchases: No Cure for Overhang

32 Pages Posted: 4 Jul 2004

See all articles by Jeremy Bulow

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 1989

Abstract

We show, in a reasonably general model, that if a highly indebted country has good investment projects available to it, then it will not benefit from using any of its resources to buy back debt at market prices. Debt buybacks and debt-equity swaps only make sense for the country if these programs are heavily subsidized by creditors. This result holds for all buyback programs large and small, so long as they involve voluntary creditor participation and are not part of a larger deal including offsetting concessions from lenders. Our analysis therefore casts doubt on the popular argument that unilateral debt repurchases benefit HICs by relieving "debt overhang".

Suggested Citation

Bulow, Jeremy I. and Rogoff, Kenneth S., Sovereign Debt Repurchases: No Cure for Overhang (February 1989). NBER Working Paper No. w2850. Available at SSRN: https://ssrn.com/abstract=238156

Jeremy I. Bulow (Contact Author)

Stanford University ( email )

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Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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