Debt Relief Techniques

  • Chris Czerkawski
Part of the Studies in Contemporary Economics book series (CONTEMPORARY)


The conceptual framework for resolving the international debt crisis ranges from letting the ‘free’ market operate (‘doing nothing’ approach) to the complete restructuring of the international monetary system. There are many other alternatives which try to address the problem from different viewpoints. Two practical issues arise in association with the new debt strategy: 1. Who will bear the losses arising form the bad debts?; 2. What reforms are necessary to reduce the probability of a similiar situation repeating itself in the future?


Interest Rate Commercial Bank Debt Crisis Secondary Market Interest Payment 
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  1. 1.
    For further coverage of this point, see, Quinn, 1987; or Kettel and Magnus, 1986.Google Scholar
  2. 2.
    The proponents of ‘free market’ approach believe that given time the market mechanism, will bring about an equilibrium in the international credit market. See, Quinn, 1987.Google Scholar
  3. 4.
    The shortcomings of the traditional approach are discussed in a number of books. See, Abbot, 1979; Goldberg and Haendel, 1987; Res and Motamen, 1987; Congden, 1988; Cline, 1985; Bergsten, Cline and Williamson, 1985; Bulow and Rogoff, 1989.Google Scholar
  4. 5.
    The impact of the austerity programs on depression and domestic upheavals is discussed by Eisendrath, 1983; On the relationship between growth and debt, see, Agmon, 1985; Boyer, 1983; Rohatyn, 1985; Feldstein, 1987; Krugman, 1985; Sachs, 1987.Google Scholar
  5. 6.
    See, The Way Forward for Middle Income Countries,Institute of International Finance, New York, 1989.Google Scholar
  6. 8.
    According to the IMF estimates, even a very modest plan for debt forgiveness would cause bancrupcies in 14% of all participating creditor banks, and would strenghten inflationaryressures in these countries. For the overview of pluses and minuses of debt forgiveness, see, Fryndl and Sobol, 1989; Corden, 1988. Debt forgiveness has been also rejected in the latest report of the Institute of International Finance, New York, 1989.Google Scholar
  7. 9.
    See, The Market Based Menu Approach, 1988; Cline, 1983; Debt and Developing World, 1989; Helpman, 1988; Froot, 1988; Bruce, 1987; Houghton, 1987; Schubert, 1987.Google Scholar
  8. 11.
    The main problem with this technique, on the debtors’ side, was the lack of sufficient foreign exchange to buy back their debts. See also, Frydl and Sobol, 1989; and Navarette, 1987; Rodriguez, 1989.Google Scholar
  9. 12.
    Exit bonds may have unfavourable impact on country’s external creditworthiness because commercial banks will surely take into account the fact that in the past a number of creditors were prepared to potential losses. An overview of the accounting, systemic and institutional aspects of this technique is given by Cline, 1985.Google Scholar
  10. 13.
    For discussion of the debt-Laffer curve, see, P.R. Krugman in Frenkel et al (eds), 1989.Google Scholar
  11. 14.
    The other argument against the RIAC is that it does not address the problem, because it is not interest rate that weakens the ability to repay, but a number of problems which require a more comprehensive overview of debt crisis. See also, Debt and the Developing World, 1989.Google Scholar
  12. 15.
    For an elaboration of the RIAC proposal, see, for example, Cline, 1985; Williamson, 1988; Dooley, 1989; Folkerts-Landau, 1989; Dooley and Symansky, 1989.Google Scholar
  13. 16.
    See, Press Release, Exchange and Trade Relations De partment, IMF, April, 1989.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 1991

Authors and Affiliations

  • Chris Czerkawski
    • 1
  1. 1.Division of Asian and International StudiesGriffith UniversityBrisbaneAustralia

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