Chapter

A Delicate Equilibrium: Debt Relief and Default Penalties in an International Context

Editor(s):
Peter Wickham, Jacob Frenkel, and Michael Dooley
Published Date:
March 1989
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    Author(s)
    GUILLERMO A. CALVO*

    Debt relief and penalties are discussed in connection with sovereign-country loans. The paper focuses on conditions for the existence of penalties that are too low for ensuring Pareto efficiency and shows the possible time inconsistency of optimal debt contracts. A methodology for ascertaining debt relief implicit in international loans is outlined.

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