Debt Swap

A debt swap is a financial liability management strategy whereby existing large sovereign debt obligations are converted to new forms of debt with lower debt service payments. They can be voluntary or mandatory as part of a debt restructuring plan. In the case of emerging market economies, it is a way of renegotiating and easing the existing debt terms to avoid financial crises that potentially deepen poverty. Highly indebted poor countries (HIPCs) generally benefit from the more conventional debt cancellation programs.

The Paris Club is an important agent in the debt swap process. It is an informal forum wherein 19 permanent creditor countries renegotiate the official public-sector debt of developing debtor countries that implement economic and financial reforms in line with the structural adjustment programs of ...