Sovereign Debt Relief Schemes and Welfare

20 Pages Posted: 15 Feb 2006

See all articles by Aasim Husain

Aasim Husain

International Monetary Fund (IMF) - Research Department

Date Written: March 1992

Abstract

This paper shows that concerted debt reduction may be welfare-improving even when the investment disincentive effect of a debt overhang is not large enough to place the debtor country on the wrong side of the debt Laffer curve. Whether the appropriate relief scheme involves debt reduction or new money, however, depends on whether investment disincentives or liquidity constraints dominate. It is shown that, except under very special circumstances, mixed policy packages involving both debt and liquidity relief may not yield the desired results.

JEL Classification: F34

Suggested Citation

Husain, Aasim, Sovereign Debt Relief Schemes and Welfare (March 1992). IMF Working Paper No. 92/25, Available at SSRN: https://ssrn.com/abstract=884672

Aasim Husain (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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