The international debt problem: An analysis of the Brady plan

Recently the American Treasury Secretary, Nicholas Brady, launched a new initiative in which he proposed reducing the developing countries’ bank debt. What are the elements of the plan, and which countries would benefit? What problems does it entail? Can it bring about a decisive improvement in the international debt situation of the developing countries? The following two articles attempt to answer these questions.

Exchange rate dynamics in black markets

Balance of payments crises and fiscal adjustment measures

A model with optimizing firms and consumers is used to explore the effects of unannounced and preannounced fiscal adjustment policies that are intended to prevent an impending balance of payments crisis. It is shown that preannouncement unambiguously raises the required fiscal adjustment effort so that, from the government's point of view, “cold turkey” is the preferable policy. The effect of preannouncement on the private sector's adjustment cost is ambiguous since preannouncement induces an externality which may either benefit or harm the private sector, depending on the nature of the measure that is preannounced.