Thayer Watkins
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Brady Bonds and the Brady Plan

In the 1970's Mexico, on the basis of the increased value of its petroleum reserves, vastly increased its international debt. In 1982 Mexico announced that it would not be able to make scheduled payments on its debt. There was then a restructuring and rescheduling of Mexico's debt payments. Similar restructurings were carried out in the 1980's for other Emerging Market (Third World) countries as well as Mexico. Such restructurings involved deferring payments, lowering interest rates, and debt forgiveness. In return for such restructuring these countries often had to agree to a program of policy changes and domestic austerity. Unfortunately these austerity programs had serious macroeconomic reprecussions and disappointing financial results.

Former Secretary of the Treasury Nicholas Brady was associated with a plan to resolve the Third World debt problem. This became known as the Brady Plan. The plan for Mexico in 1989 gave creditors three options:

About $20 billion of Mexico's $84 billion debt was rescheduled the first option and $22.5 billion under the second option. There was only $1.6 billion of new loans under the third option.

Other countries (Argentina, Brazil, Nigeria and the Philippines) also carried out restructurings of debt under the Brady Plan. The bonds issued became known as Brady bonds. In 1994 there was about $80 billion in Brady bonds outstanding.

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