Debt Relief by Private Creditors: Lessons from the Brady Plan

Background Paper #7

By Stephany Griffith-Jones, Kevin Gallagher, and Ulrich Volz

As a result of the COVID-19 shock, and the rather high levels of debt that already existed before COVID, many countries in the Global South – both emerging and developing – are facing a new debt crisis, which could severely disrupt their development and threaten the achievement of United Nations’ Sustainable Development Goals.

Against this backdrop, this paper reviews the experiences during the resolution of the Latin American debt crisis and seeks to extract relevant lessons from the Brady Plan, which in 1989 laid the foundation for the restructuring of the sovereign debt of mainly Latin American countries.

The combination of credit enhancement for restructured debt on the one hand, and moral suasion and tax relief on the other hand, proved to be successful in convincing private creditors to participate in debt restructurings in the late 1980s and early 1990s.

When adjusted to current circumstances, a similar approach may provide the solution to addressing today’s sovereign debt problems. This paper provides the historical context to the Brady Plan, examines the central features of the Brady Plan, and concludes by extracting the main lessons and implications for private creditor debt relief for today.

Published by Heinrich Böll Foundation, Center for Sustainable Finance (SOAS, University of London), and Boston University Global Development Policy Center as Background Paper to the Debt Relief for Green and Inclusive Recovery Project.