THE IMPACT OF THE PERSIAN-GULF CRISIS ON THE PRICES OF LDCS LOANS

The article employs the event-study methodology to examine the impact of the Persian Gulf Crisis on the prices of LDCs' loans. The main empi rical findings are that the Gulf Crisis (1) had a significant impact o n the loan prices of LDCs; (2) decreased the loan prices of LDCs with low oil reserves but increased the loan prices of LDCs with high oil r eserves; (3) imposed a harsh constraint on the ability and willingness of the severely indebted LDCs to meet their debt obligations; (4) had a strong negative impact on the loan prices of low-income LDCs; and ( 5) produced large economic losses in LDCs with large remittances from the Middle East. The markets for LDC debt are efficient and responded to the crisis according to expectations. It is interesting to point ou t that most of the changes in the loan prices occurred during the time period that began with the invasion of Kuwait and ended with the alli ed forces' air attack.