TY  - JOUR
AU  - Arslanalp,Serkan
AU  - Henry,Peter Blair
TI  - Is Debt Relief Efficient?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10217
PY  - 2004
Y2  - January 2004
UR  - http://www.nber.org/papers/w10217
L1  - http://www.nber.org/papers/w10217.pdf
N1  - Author contact info:
Serkan Arslanalp

Peter Blair Henry
Stern School of Business
New York University
44 West 4th Street, 11-58
New York, NY 10012
Tel: 212/998-0909
E-Mail: pbhenry@stern.nyu.edu
AB  - When Less Developed Countries (LDCs) announce debt relief agreements under the Brady Plan, their stock markets appreciate by an average of 60 percent in real dollar terms   a $42 billion increase in shareholder value. In contrast, there is no significant stock market increase for a control group of LDCs that do not sign Brady agreements. The results persist after controlling for IMF programs, trade liberalizations, capital account liberalizations, and privatization programs. The stock market appreciations successfully forecast higher future net resource transfers, investment and growth. Creditors also benefit from the Brady Plan. Controlling for other factors, stock prices of US commercial banks with significant LDC loan exposure rise by 35 percent   a $13 billion increase in shareholder value. The results suggest that debt relief can generate large efficiency gains when the borrower suffers from debt overhang.
ER  -