Sputnik Escalates the Cold War
Teaser Image

Brady Plan (March 1989)

Debt restructuring plan for developing-world nations implemented by the United States in March 1989. Named after U.S. Treasury Secretary Nicholas F. Brady, the Brady Plan was developed in the first few months of the George H. W. Bush administration. The plan outlined several methods by which both developing and middle-income nations could reduce their foreign debt load. American and international supporters of the Brady Plan urged commercial banks as well as the International Monetary Fund (IMF) and the World Bank to offer qualifying debtor nations a variety of options for reducing their debt. During 1989–1995, the twenty-one countries that participated in the plan reduced their debt load by $75 billion.

American officials outlined three main programs in the Brady Plan that would allow debtor nations to replace existing debt: debt buybacks, debt conversions, and debt-for-equity swaps. A buyback involved the debtor nation repurchasing some of its existing debt at discounted prices. Because the debt of many countries was valued on open markets far below its face value, nations could reduce their overall debt by borrowing funds from the IMF or the World Bank to purchase their existing debt at deep discounts. Debt conversion involved replacing existing variable interest rate loans with new debt carrying lower fixed rates. Participation in this program required debtor nations to offer guarantees of payment or collateral. For instance, some nations were expected to secure debt repayment with future oil production. In a debt-for-equity trade, a debtor country bought back a portion of its debt with cash reserves. The seller of the debt, the creditor, agreed to reinvest the proceeds of the debt sale in the debtor nation. This reinvestment constituted a new equity position for the creditor in the debtor nation. To participate in the Brady Plan programs, debtor nations pledged to meet certain policy standards for achieving long-term economic stability.

Any middle-income or developing-world debtor nation was potentially eligible to participate in the Brady Plan; however, its implementation is usually associated with Latin America. The four nations participating in Brady Plan debt reduction programs in the first year of its existence were Costa Rica, the Philippines, Mexico, and Venezuela.

Creston S. Long


Further Reading
Sachs, Jeffrey. "Making the Brady Plan Work." Foreign Affairs (Summer 1989): 87–104.
 

©2011 ABC-CLIO. All rights reserved.

  About the Author/Editor
  Introduction
  Essays
  A
  B
  C
  D
  E
  F
  G
  H
  I
  J
  K
  L
  M
  N
  O
  P
  Q
  R
  S
  T
  U
  V
  W
  Y
  Z
  Z
  Documents
  Images
ABC-cLIO Footer