Abstract
The following efficiency analysis focuses primarily on the relationship of creditor banks and rescheduling countries. Benefits or costs for other parties are alluded to only when their role directly impacts the explanation of the efficiency of a particular innovation as is the case for multinational corporations participating in debt equity swaps. All efficiency improvements perceived by creditor banks can also be considered as applicable criteria for their rescheduling country portfolio management decisions. Certainly, a host of positive and negative externalities for other parties exists that for matters of scope and simplicity cannot be discussed here.
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References
Cf. section 2.4.1.
Cf. section 5.3.1.
Cf. p. 74 (section 4.1.1.2.).
German Banks do not publish their loan claims on individual debtor countries separately.
There is no legally binding obligation to participate in reschedulings. Yet, inter-bank relationships discipline banks to participate and make this endeavour a tedious one.
Cf. section 4.1.1.1. Similar regulations that apply to German banks are alluded to on section 4.2.1.1.
Cf. Evans [1988, 27]. Witholding tax obligations for interest income on individual loans differ relative to the nationality, the legal status of the debtor, and other criteria. The incentive for trading in such assets arises with the opportunity to charge withholding tax that has already been payed against taxable income. The role of witholding tax privileges in Euroloans is treated by Ebenroth [1984].
For the conditions applicable to such transactions v. Arndt [1986, 109].
Following Guttentag/Herring [1987, 152seq.] four advantages of bank loans versus securitized debt can be identified. Bank loans are a less costly transaction mode when, (1) the analysis of a claims’ riskiness, or a borrower’s creditworthiness is highly dependent on very subjective information, that may only be obtainable through personal contact, (2) the underlying contract has to be custom-tailored to the needs of the debtor and a special ability or discretion to monitor a borrowers’ compliance is required, (3) the funds obtained are required for a specialized project or purpose and/or the collateral used is not perfectly marketable, and when (4) information for risk analysis is partly dependent on the creditor-borrower relationship, because scale economies arise for further lending, further risk analysis, and further monitoring.
Such modification cost economies can also be expressed in Williamson’s [1979, 240seq.] words: “Additional transaction-specific savings can accrue at the interface between supplier and buyer as contracts are successively adapted to unfolding events, and as periodic contract-renewal agreements are reached. Familiarity here permits communication economies to be realized: spezialized language develops as experience accumulates and nuances are signaled and received in a sensitive way. Both institutional and personal trust relations evolve. Thus the individuals who are responsible for adapting the interfaces have a personal as well as an organizational stake in what transpires. Where personal integrity is believed to be operative, individuals located at the interfaces may refuse to be apart of opportunistic efforts to take advantage of (rely on) the letter of the contract when the spirit of the exchange is emasculated. Such refusals can serve as a check upon organizational proclivities to behave opportunistically. Other things being equal, idiosyncratic exchange relations which feature personal trust will survive greater stress and display greater adaptability.”
Cf. also section 5.3.1.
Cf. section 3.1.3. This section draws heavily on Wulfken/Berger [1988, 371seq.].
This line of argument illustrates the mutual feedback character of the relationship between design activities concerning regulatory and market, i.e. organizational, institutions.
Cf. p. 14.
Basically the same arguments as in section 5.1.2.1. apply.
This hoidg especially true for the cofinancing of investments together with a development bank — another item on the menu of options. Cofinancing allows commercial banks to share a development bank’s credit risk which is lower than the usual risk arising without cofinancing. First, the political clout associated with the support of the sovereign powers which fund the development bank reduces country risk and thus reduces enforcement costs arising from undesired debtor behavior. Second, for the same reason development banks are able to influence and more tightly control all aspects of the implementation of the project. This reduces the commercial risk involved in the project from the perspective of the commercial bank. Hence, information costs can be saved. The development bank benefits by obtaining additional funds to finance worthwile projects it could otherwise not undertake.
Cf. section 4.1.2.2.
Cf. section 3.3.1.4.
Cf. section 3.2.3.5. and Clark/Yianni [1988, 9 & 13seq.].
Cf. section 4.1.3.4.
Cf. section 4.1.1.8.
Therefore other debt for debt swap modes such as relending and currency redenomination are not focussed on here. The main benefits of relending -like of onlending — are that it allows banks to avoid the restraining effect of lending limit regulations and help them to start or continue business relations with specific customers in rescheduling countries as well as to fund subsidiaries by conducting debt equity swaps with onlendable claims. Currency redenomination improves possibilities for exchange risk management by creditor banks.
In 1988, an unexpectedly low amount of US$ 1.108 billion, i.e. about 30% of US$ 3.67 billion of old debt accepted for conversion, could be deducted from Mexico’s total external debt (Ebenroth/Messer [1988, 492] and Stausberg [1988]). In 1990, the debt principal reduction amounted to US$ 6.4 billion (Truell [1990]). This was achieved within a three part restructuring of US$ 48 billion of old commercial bank debt. It consisted (1) of a conversion of about US$ 19 billion into bonds with a principal reduced by 35%, (2) of a conversion of about US$ 24 billion into bonds carrying a low interest rate of 6 1/4%, and (3) for the remaining part of about US$ 4.8 billion some banks committed to new lending of 25% of their medium- and long-term loans outstanding. The agreement was reached only with substantial support by the US government (cf. ibid.).
Cf. section 2.3.2.3.
Cf. section 4.1.2.4.
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Berger, W. (1990). Efficiency Analysis of Innovations in International Debt Management. In: Financial Innovations in International Debt Management. nbf Neue Betriebswirtschaftliche Forschung, vol 73. Gabler Verlag. https://doi.org/10.1007/978-3-322-89330-7_5
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DOI: https://doi.org/10.1007/978-3-322-89330-7_5
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