RECENT EXPERIENCE WITH COMMERCIAL BANK DEBT REDUCTION - HAS THE MENU OUTDONE THE MARKET

Debt reduction at market terms has been criticized as too expensive fr om the point of view of the debtor. The recent debt reduction agreemen ts following the ''menu approach'' are partially concerted, but they a lso possess some elements of voluntariness. This raises two issues: (a ) what is the conceptual justification for such financial arrangements ? and (b) based on recent evidence, to what extent have these arrangem ents reduced the cost of debt reduction? In a review of six recent men u-driven debt reduction agreements, we find that the debtors achieved a far better financial result than would have been feasible with simpl e market buybacks.