A Valuation Formula for LDC Debt

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Abstract
This paper gives a valuation formula for LDC debt that is used to assess: i) the price at which a buy-back of the debt is advantageous to the country (we shall see that it is likely to be half the observed market price); ii) the value to the creditors of having the flows of payment guaranteed against the extrinsic stochastic disturbance faced by the country (we shall see that it may not exceed 25%); iii) the trade-off between growth of payments and levels of payments (we show that a 1% additional growth rate is worth a 15% increase of the flows). We offer finally an assessment of the Mexican agreement reached in early 1990.
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