Voluntary Debt Reduction Operations. Bolivia, Mexico and Beyond

Abstract

This paper studies two recent voluntary operations of debt reduction: Bolivia's buy-back and Mexico's exchange of loans for bonds. It is argued that the buy-back had a cost for Bolivia and, hence, it required a political decision when comparing this option to other alternative use of its scarce foreign exchange resources. In the case of Mexico, it is shown that the operation, which can be seen as an indirect buy-back, gave this country a rate of return on the use of its reserves, between 18% and 24%. The effects of both transactions on the debtor are examined, as well as on participating and non-participating creditor banks.