ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Debt-Equity Swaps-New Way Out of International Debt Crisis

New Way Out of International Debt Crisis?
Nirmal Kumar Chandra AS the international debt crisis persists, some creditor banks in co-operation with the debtor governments have found an apparently painless, though admittedly partial, solution in debt-equity swaps. What are these swaps like? Take the case of Nissan Corp (Japan) which purchased on the secondary market through Citicorp (US), Mexican debts with a face value of $ 60 million for a sum of $ 40 million, sold the debt to the Mexican government for $ 54 million in Mexican pesos, and the local currency proceeds were invested in Nissan's Mexican affiliate. It looks like a copybook example of Pareto-optimality: the original creditor must have been happy to have recovered two-thirds of the face value in dollars, Nissan obtained Mexican pesos at a discount of 26 per cent and the Mexican government not only took a 10 per cent cut but managed to liquidate its dollar loan. The supreme virtue of it from a Reaganomic perspective was that the entire operation was carried out by using the 'normal' market channels without the use of political pressures or threats.

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