SECONDARY MARKET PRICES AND MEXICO BRADY DEAL

The use of official funds in debt reduction packages has been widely a rgued to amount to a creditor bailout. We analyze this question using a case study of Mexico's 1989 Brady deal. Using an option-based pricin g model, we obtain pre- and postmarket, values for Mexico's commercial debt and find that the market value inclusive or official funds went up only marginally. Consequently, Mexico obtained a large share of the benefits of the official funds and struck a favorable deal. The Brady debt reduction formula this seems to offer an efficient framework for debt workouts, Recent events in Mexico confirm that view.