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Mr. Mohamed A. El-Erian

’s commercial bank financing package constitutes an important step in the implementation of the strengthened debt strategy, which seeks to facilitate debtor countries’ return to sustained economic growth and external payments viability. The agreement—which supports a comprehensive economic adjustment package with a strong structural reform component—provides direct benefits for Mexico’s external position in the form of lower payment obligations to commercial creditors and reduced vulnerability to fluctuations in international interest rates. These effects are compounded by

Mr. Maxwell Watson and Klaus Regling

-88. Nonetheless, the assembling of bank financing packages became increasingly difficult. A main reason for this was the weakening in bank cohesion resulting from a sharper divergence in their business interests and exposures. Many smaller, less exposed banks, with little strategic interest in foreign countries, tried to get out of international lending activities; as a minimum, such banks wanted to avoid contributing to concerted financing packages. But even banks that wanted to remain active in the international markets had a clear preference for shifting away from general

Mr. Mohamed A. El-Erian

percent thereafter). Preliminary indicators suggest that, together with appropriate economic policies, the debt and debt-service reduction operations have reduced debt overhang concerns. This is most evident in the case of Mexico where the announcement of the bank financing package was followed by a sharp improvement in country risk indicators. Real ex post domestic interest rates fell by 20 percentage points to about 10 percent a year following the announcement—a decline that was sustained thereafter. The yield on Mexican external traded bonds also fell sharply (by

International Monetary Fund

designed with fixed repayment installments, but combining floating interest rate and variable principal components. Although cofinancing normally involves direct World Bank lending as well, the World Bank also has been willing to consider the selective use of guarantees and other cofinancing instruments in heavily indebted countries on a case-by-case basis. The World Bank has recently made use of such guarantees for Mexico and Uruguay, both of which involved some innovative features. For Uruguay, the guarantee was extended in the context of a bank financing package

Mr. Peter M Keller

several reasons, including the emergence of the menu approach in bank financing packages, it has become increasingly necessary to take a broader approach to assessing the contribution of official creditors versus bank creditors, both in specific countries and overall. Efforts by banks and by official creditors to secure equitable burden sharing in the provision of debt relief or concerted financing are evidenced by the parallel pace of bank and official restructurings. During the period under review, bank debt restructurings preceded or followed closely Paris Club

Mr. Mohamed A. El-Erian
After a prolonged and almost total reliance on debt restructurings and concerted new money facilities, several Latin American countries have, over the last two years, mobilized voluntary financing from international capital markets. Although the phenomenon is still relatively limited in terms of volume and number of borrowers, it has nevertheless attracted considerable attention. The paper reviews the nature, magnitude and terms of the market re-entry process and, by drawing upon recent country experiences, analyzes the factors that have facilitated it. This provides the basis for a discussion of the key elements affecting the short-term prospects for Latin American private and public sector voluntary debt and equity financing from international capital markets.
Mr. Mohamed A. El-Erian
The paper analyzes the evolution of Mexico’s approach to commercial bank debt restructuring since the outbreak of the 1982 debt servicing problems. It discusses the key elements of the approach, their implementation, and their interaction with developments in the “international debt strategy.” It focusses, in particular, on factors contributing to the emergence of comprehensive market-based debt and debt service reduction operations. Together with the sustained implementation of appropriate economic policies, these operations have contributed to Mexico’s return to voluntary international capital market financing. The paper discusses the major aspects of this market re-entry process.
Mr. Jorge P. Guzmán and Mr. Michael G. Kuhn


This paper reviews trends in official debt rescheduling and recent experience with debt renegotiations in the face of the persistent problems of heavily indebted developing countries.

Mr. Mohamed A. El-Erian

bond exchange was followed by a comprehensive bank financing package incorporating debt and debt service reduction operations. This occurred in the context of a modification to the international debt strategy--the “Brady initiative”--providing official support for such operations. The beneficial cash flow impact of Mexico’s debt reduction package was accompanied by a significant improvement in private sector perceptions of country transfer risk. This was manifested in the sharp reduction in domestic real interest rates and a recovery in secondary market prices for