strategy
Addressing acute debt-servicing problems
Synonyms:
Concentrating on acute debt-servicing problemsEnsuring sustainable debt-servicing obligations
Reducing debt overhang
Reducing unsustainable debt-servicing obligations
Context:
A framework to reduce the burden of debt must: (a) allow debtors to grow faster and export more; (b) enable the cost of debt service to fall. Implementation:
Possible financial options include: (a) inflow of new capital through foreign direct investment; (b) conversion of foreign currency debt into domestic currency investment through debt equity swaps, thus altering the debtors' obligation and reducing their interest-bearing external debt; (c) conversion of existing loans into local currencies, thus repatriating flight capital and alleviating the drain on foreign currency resources; (d) using performance bonds or commodity-indexed bonds as a source of new money, although this would not significantly reduce debt overhang; (e) cushioning interest rate and currency shocks to debtor countries through financial engineering and liability management - for example, interest rate swaps and interest rate caps reduce interest rate sensitivity of existing liabilities by converting floating rate borrowings into fixed rate liabilities or by putting a ceiling on future interest rates; (f) new contractual arrangements between debtors and lenders, for example by subordinating existing debt to future loans, giving the latter senior status; (g) sharing the burden between debtors and creditors and providing debt relief by partial write-offs of existing loans; (h) partial or complete interest capitalization as an alternative to accumulating new loans to finance interest due. Broader:
AddressingConcentrating Narrower:
Swapping debtsCancelling international debtDecreasing foreign debt of vulnerable countriesDecreasing foreign debt of vulnerable countriesIntegrating disaster prevention into development planningProtecting vulnerable countries against increasing foreign debt Facilitated by:
Capitalizing interestRescheduling external debtManaging financial liabilityResuming lending to indebted countriesMaintaining solvency of the banking systemImproving creditworthiness of developing countriesEnsuring debt reduction packages support the evolving international debt strategy Values:
DebtProblemUnsustainable Subjects:
Amenities → MaintenanceCommerce → Credit
Development → Sustainable development
Type Classification:
F: Exceptional strategies Related UN Sustainable Development Goals:
