Solutions: The Brady Plan
Brady Plan – 1989
- Offered three options: Decrease face value of debt, extend the term of obligations, or infusion of new money.
- Decreasing the face value of debt through buybacks in the secondary market were officially allowed.
- Terms of loans were extended by swapping old loans for 30-year bonds (Brady Bonds) with fixed rates. Debtors had option of a 30%-35% discount on the face value or a reduced rate.
- Guarantees offered to lenders in event of default encouraged investor confidence. Guarantees were usually US. Treasury Bonds.
- Infusion of new money is facilitated by the reduction of risk.