Abstract
AbstractThe debt controversy seems now to be focused on which countries should be eligible for debt relief, and if foreign aid should be used in debt relief agreements with commercial banks. We participate in the debate by examining the situation in Latin America. Although debt relief is a crucial ingredient for restoration of growth, our empirical estimation shows that few countries were suffering from debt overhang in 1988. However, we could not envisage a justification for using foreign aid in debt relief negotiations. We argue that commercial banks should accept the loss at the market discount and foreign aid could instead help to support stabilization and economic reform programmes which are preconditions for growth.
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