Cohen, Daniel and Verdier, Thierry
'Secret' buy-backs of LDC debt
Journal of International Economics, 39, (3-4), . (doi:10.1016/0022-1996(95)01372-9).
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We analyze the buy-back of its debt by an LDC. Contrary to previous analyses of this subject, we assume that the debtor can hide its transactions behind the veil of a fictitious operator: the banks, we assume, cannot discriminate intra-bank transactions from buy-backs by the debtor itself. With this assumption, the lenders set the price by (rationally) taking account of the country's incentive to repurchase its debt. Will the debtor undertake a buy-back of its debt? The answer is a qualified yes. Large buy-backs will take place.
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