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Official credits to developing countries : implicit transfers to the banks, Volume 1
 
Author:Demirguc-Kunt, Asli; Huizinga, Harry; Collection Title:Policy, Research, and External Affairs working papers ; no. WPS 592. Debt and international finance
Date Stored:2001/04/26Document Date:1991/02/28
Document Type:Policy Research Working PaperLanguage:English
Major Sector:(Historic)Economic PolicyReport Number:WPS592
Sub Sectors:Macro/Non-TradeSubTopics:Financial Crisis Management & Restructuring; Economic Theory & Research; Banks & Banking Reform; Municipal Financial Management; Financial Intermediation
Volume No:1  

Summary: This paper investigates the impact on the wealth of bank share holders on the transfer of official resources to the debtor countries. The main aim was to derive actual estimates of increases in shareholder wealth following important news concerning future transfers from the multilaterals to the debtor nations. The main result, is that stock market expects virtually all additional resources provided to debtor countries to be used for debt service to commercial banks. While the estimated magnitude of these effects are informative, the emphasis should be on the direction of these effects as they are robust to overestimation problems. Clearly, official resources provided to debtor countries do devolve to creditor banks. However, the debtor countries should at least gain in so far as the reduction of a debt overhang eliminates investment distortions. The results stem from the fact that some of the monies provided by the multilaterals are specifically earmarked for debt service or are in the form of general balance-of-payments support that the developing countries can use for private debt service. Official creditor resources that are specially provided to finance development projects are less likely to be allocated to bank debt service.

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