Incentive effects of self-enforcing contracts in international lending

The persistent debt crisis of mayor LDC-borrowers has led to various proposals on how to ease or even solve these problems. Most suggestions have in common that they concentrate on restructuring the old loans and suggest approaches to higher future lending . These proposals are based on the assumption that the debt burden accumulated in the past represents the main obstacle to new bank lending in the future. It has to be doubted, however, that debt relief in one form or another will be sufficient for generating new lending. The high debt burden constitutes only one reason for the reluctance of banks to provide fresh money voluntarily. A more fundamental reason may be related to the behavior of creditors and borrowers that lead to the present instability of the international credit market. This behavior is influenced by the institutional incentive structure prevailing in this market. New lending would, therefore, be conditional on an improved institutional framework in the international credit market.

Incentive effects of self-enforcing contracts in international lending

The persistent debt crisis of mayor LDC-borrowers has led to various proposals on how to ease or even solve these problems. Most suggestions have in common that they concentrate on restructuring the old loans and suggest approaches to higher future lending . These proposals are based on the assumption that the debt burden accumulated in the past represents the main obstacle to new bank lending in the future. It has to be doubted, however, that debt relief in one form or another will be sufficient for generating new lending. The high debt burden constitutes only one reason for the reluctance of banks to provide fresh money voluntarily. A more fundamental reason may be related to the behavior of creditors and borrowers that lead to the present instability of the international credit market. This behavior is influenced by the institutional incentive structure prevailing in this market. New lending would, therefore, be conditional on an improved institutional framework in the international credit market

Selective and unspecific expropriation of foreign direct investments: Empir. evidence and implications for the debt crisis

The persistence of the.international debt crisis has given rise to considerations that foreign direct investment (FDD should play a larger role in the financing of less developed countries (LDCs) in the future. FDIs may provide external financing for developing countries even in times when new lending is restricted due to high credit risks. Flexible payment schedules and the extended property rights may differentiate FDIs from international loans and provide shelter against high country risks. However, FDIs are subject to sovereign risk as well. The option of sovereign states to defer loan repayments as soon as the.costs of contract fulfillment exceed the benefits has its counterpart in expropriations of FDI. The potential of substituting FDI for debt depends on the attitude of the LDCs1 governments towards FDI. A larger role for FDI, especially in times of restricted new lending, will only be possible if the political and economic situation of the borrowing country that induces creditors to expect a higher risk of willful default does not increase the risk of expropriations at the same time.

International capital transfers with public guarantees: A principal-agent analysis

The financial needs of corporations are generally met by borrowing in financial markets and equity participation of investors. In a similar way countries are able to obtain necessary external financing through international loans or by attracting foreign direct investment. In the case of developing countries foreign aid constitutes an additional source of foreign capital inflows. Looking at the major borrowers in Latin-America with severe debt service problems it can be stated that foreign borrowing clearly dominates the external financial structure of these countries, with foreign aid flows being negligible. The heavy reliance on foreign debt in these countries has triggered proposals that recommend a stronger role of FDI as a mean for solving the debt problems .

Selective and unspecific expropriation of foreign direct investments: Empirical evidence and implications for the debt crisis

The persistence of the.international debt crisis has given rise to considerations that foreign direct investment (FDD should play a larger role in the financing of less developed countries (LDCs) in the future. FDIs may provide external financing for developing countries even in times when new lending is restricted due to high credit risks. Flexible payment schedules and the extended property rights may differentiate FDIs from international loans and provide shelter against high country risks. However, FDIs are subject to sovereign risk as well. The option of sovereign states to defer loan repayments as soon as the.costs of contract fulfillment exceed the benefits has its counterpart in expropriations of FDI. The potential of substituting FDI for debt depends on the attitude of the LDCs1 governments towards FDI. A larger role for FDI, especially in times of restricted new lending, will only be possible if the political and economic situation of the borrowing country that induces creditors to expect a higher risk of willful default does not increase the risk of expropriations at the same time