Solutions: the Secondary Market
Debt-for-Nature Swaps
- Reduce debt while saving the environment
- Int’l environmental groups buy discounted debt turn it over to the government who commit local currency for parks, etc.
- Small % of overall debt, difficult to manage, “paper parks” result
- What next? Debt-for-health swaps, Debt-for-education, etc.
Creation of a Debt Facility
- Facility organized by creditor governments to take over LDC loans at a discount in exchange for creditor government guarantee
- Claims would be renegotiated with debtor country, passing on the discount and restructuring the debt in terms of maturity
- Risk: inability or unwillingness of debtor country to meet debt obligations
- Banks currently holding debt lose negotiating power
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