

<head> Tipster Topic Description

<num> Number: 006

<dom> Domain: International Finance

<title> Topic: Third World Debt Relief


<desc> Description:

Document will discuss debt relief for a developing country.


<narr> Narrative:

A relevant document will discuss debt relief proposed or granted a
developing country, and will identify the type of relief, e.g., debt
forgiveness, debt reduction, new loans, refinancing loans, cash aid,
etc.


<con> Concept(s):

1. debt burden

2. debt relief

3. developing country, LDC, debtor country

4. International Monetary Fund (IMF), World Bank, Paris Club, creditor
bank, creditor country, creditor government

5. debt forgiveness, debt reduction, debt rescheduling, debt for
equity swap, interest rate change, new loan agreement, refinancing
loans, western aid, cash aid, trade-credit facility, money-market
deposit facility, exit bond


<fac> Factor(s):

<nat> Nationality: Developing country

</fac>


<def> Definition(s):

Debt relief - The easing of a debtor country's burden of servicing its
external debt.  Relief can be obtained through new financing at
concessional rates, limitations on debt service levels, outright debt
reduction, or changing the original terms of loans including
rescheduling of principal repayments, retiming of interest payments,
and interest capitalization.

Debt reduction - The voluntary and negotiated reduction of a debtor
country's burden of servicing its external debt.  Debt reduction can
be obtained through negotiated changes in the terms and conditions of
the loan, to include debt rescheduling, retiming of interest payments,
and interest capitalization.  Debt reduction can also be obtained
through measures designed to reduce the level of international debt,
to include debt conversions, debt buybacks, and debt-equity swaps.

Debt buy-back - A secondary market debt relief mechanism whereby the
debtor buys back its own debt outright at the market's discounted
prices, thus providing the debtor country immediate debt relief.  Also
an arrangement under which a group of friendly countries donate cash
to set up a fund to buy a debtor country's claims.

Debt conversion - A form of debt relief that involves converting a
country's external debt into domestic debt or equity.  These
conversion schemes encourage foreign investment, provide a channel for
the return of flight capital, and reduce the foreign exchange costs of
servicing the country's external debt.

Debt-equity swap - The exchange of a debt instrument for an equity
investment.  The most frequently used secondary market debt relief
scheme whereby a commercial bank sells its debt at a discount to a
multinational corporation or other private investor who transfers it
to the debtor country for redemption at near or full face value in
local currency or government notes.  The investor then uses the
proceeds to buy equity shares in a local business in the debtor
country.  Alternatively, a creditor bank can swap a loan in its
portfolio for an equity instrument of its own, buying additional debt
on the secondary market, if necessary, to afford the desired
investment.

Debt forgiveness - A debt relief arrangement that reduces the present
value of contractual loan obligations of the debtor country.
Forgiveness schemes often are made mandatory by a creditor country and
apply to all creditors of the debtor.  Methods include forced
write-downs or write-offs of principal, cancellation of obligations to
pay interest, or proposals for an international facility designed to
purchase LDC debt at a mandated discount so that the savings can be
passed on to the debtor country.