How the Brady Plan Delivered on Debt Relief: Lessons and Implications

This slim volume is a timely retrospective on the Brady Plan, the 1989 initiative named after Treasury Secretary Nicholas Brady, through which the United States helped resolve the Latin American debt crisis. Under Brady’s plan, Latin American governments could exchange troubled bank loans for newly issued bonds. The United States applied regulatory and political pressure and multilateral institutions provided modest incentives known as financial sweeteners to encourage banks and governments to participate in the exchange. The arrangement cleared away defaulted loans, jump-started trading in emerging market debt securities, and renewed developing countries’ access to global financial markets. The authors caution that this strategy won’t help resolve today’s debt crisis in low-income countries, however, because circumstances have changed. Where once there were only banks, there is now a diverse set of creditors, and the United States has ceded to China the mantle of the world’s top lender.