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=Game Theory Analysis=
===Eastern Europe: Bulgaria===


===Eastern Europe: Bulgaria===
<center>'''Action / Circumstance  =>  Result'''</center>


*Will creat a table of positive and negative outcomes resulting from the country's economic decisions.
----
*Will try to devise a game model for all interactions and resulting outcomes.
*Will try to solve the game.
*Will try and classify the game as a standart game type if possible (depending on the outcome).
*Will discuss evolutionary stability, coordination problems, and Pareto efficiency.


*$10 billion debt (74% of GDP) => Moratorium on debt payments
*Moratorium on debt payments => Negotiations with the financial institutions (IMF / World Bank)
*Negotiations with the financial institutions => Brady plan (July 28, 1994) + IMF
*Conditions on agreeing to the Brady plan =>
**Debt relief -> Guarantees needed for remainder of debt
**Guarantees offered by Worl Bank and IMF -> World Bank and IMF effectively own Bulgaria's debt
**Worl Bank + IMF own debt -> World Bank and IMF can demand specific economic reforms (dependancy)
<br>
*'''POSITIVE''' effects of the Brady plan:
**Increased credibility rating
**Increased credibility rating => Expected increase in foreigm direct investment (stabilization)
**Budget is freed from debt repayment burden
**Government can lower obligation to the IMF and World Bank by directly purchasing Brady bonds
**Brady bonds can be used as payment method in the privatization process
<br>
*'''NEGATIVE''' effects of the Brady plan:
**Country becomes dependent on IMF / World Bank (shareholder interests)
**IMF / World Bank can demand actions such as removal of trade barriers, monopolies, or special tax distortions
**Currency pegged to the euro/dollar
<br>
*In 2002 Bulgaria exchanged the Brady bonds for global bonds =>
**Bulgaria becomes a real participant in the global economy
**Bought $5.137 billion worth of Brady bonds for $2.486 billion
**$135 million collateral released
**Debt maturity extended in time
**Debt / GDP ratio decreased -> credit profile increased (14 times)
**Also shows a country can make it on its own without becoming dependent on the financial institutions (needs excellent management)
<br>
===South America: Argentina===
===South America: Argentina===


*Will creat a table of positive and negative outcomes resulting from the country's economic decisions.
<center>'''Action / Circumstance  =>  Result'''</center>
*Will try to devise a game model for all interactions and resulting outcomes.
 
*Will try to solve the game.
----
*Will try and classify the game as a standart game type if possible (depending on the outcome).
*Will discuss evolutionary stability, coordination problems, and Pareto efficiency.


*Crisis in 1980 in Latin America leaves Argentina with an outsanding foreing debt => Negotiations with the IMF
*IMF offers help under certain conditions => Argentina need to replace existing military regime
*New government elected in 1991 => The peso is tied to the US dollar
*Peso tied to US dollar:
**Limited monetary growth and increase in reserves
**Lower inflation and increasing GDP (7%)
<br>
*Outside factors in 1997 (Crisis in Mexico and Brazil + US dollar depreciates) =>
**Peso depreciates -> 2001 Argentina crisis
**Extreme fall in credibility -> major decrease in foreing investments
<br>
*IMF demand payment on debt =>
**Argentina can choose to stop payments:
***Unstable markets and more problems for neighbouring countries
**Argentina pays:
***Taxes increase and government spending decreases
***GDP falls and unemplayment rises
***Riots take the streets
<br>
*Deficit targets not met => IMF simply increases the target percentages so that the country meets the requirements
*Operating at new targets lead to greater fianacial crisis => IMF issues more loans
*More loans => More debt
*More debt => Eventually the country is back where it started, but with higher inflation and unemployment rates
*IMF demands more productivity (pensions / environmental requirements / severence benefits) => Argentina defects
*Argentina defects => IMF backs off due to the high-profile status of the country and the february 2004 $88 billion debt
*IMF admits mistakes => IMF loses credibility and respect
<br>
===Africa: Nigeria===
===Africa: Nigeria===


*Will creat a table of positive and negative outcomes resulting from the country's economic decisions.
<center>'''Action / Circumstance  =>  Result'''</center>
*Will try to devise a game model for all interactions and resulting outcomes.
 
*Will try to solve the game.
----
*Will try and classify the game as a standart game type if possible (depending on the outcome).
 
*Will discuss evolutionary stability, coordination problems, and Pareto efficiency.
*In 1980 Nigeria receives a loan from the Paris Club => Generates an outstanding foreign debt of $19 billion
*Great debt repayment problems due to:
**corruption / unstable government
**poverty / poor agriculture, industry, and infrastructure
<br>
*'''POSITIVE''' factor: Nigeria is rich in oil
<br>
*Military dictatorship => Financial institutions refuse negotiations with Nigeria
*No negotiations with the Paris Club / IMF / World Bank => Interest arrears and penalties accumulated
<br>
*In 2000 Nigeria agrees to IMF demands and starts negotiations => Nigeria receives debt restructuring from the Paris Club and a $1 billion credit from the IMF
*In 2002 Nigeria fails to meet spending and exchange rate targets => Pulls out of the IMF program
<br>
*Increase in oil exportation, deregulation and partial privatization of the oil industry => GDP increases significanlty in 2005
*In Novemreb 2005 Nigeria signs a deal with the Paris Club and the IMF to eliminate $30 billion from the $37 billion oustanding debt (under  the agreement that it will pay $12 billion in arrears to bilateral creditors) => Nigeria is allowed to buy the remainder of the debt at a discount + agrees to more intensified IMF reviews
*Increase in IMF control => political and social reforms needed + Nigeria looses some of its financial independance
<br>

Latest revision as of 08:41, 1 May 2006

Introduction | Cases | Strategy Analysis | Aggregate Model | Conclusion | Sources Used

Eastern Europe: Bulgaria

Action / Circumstance => Result
  • $10 billion debt (74% of GDP) => Moratorium on debt payments
  • Moratorium on debt payments => Negotiations with the financial institutions (IMF / World Bank)
  • Negotiations with the financial institutions => Brady plan (July 28, 1994) + IMF
  • Conditions on agreeing to the Brady plan =>
    • Debt relief -> Guarantees needed for remainder of debt
    • Guarantees offered by Worl Bank and IMF -> World Bank and IMF effectively own Bulgaria's debt
    • Worl Bank + IMF own debt -> World Bank and IMF can demand specific economic reforms (dependancy)


  • POSITIVE effects of the Brady plan:
    • Increased credibility rating
    • Increased credibility rating => Expected increase in foreigm direct investment (stabilization)
    • Budget is freed from debt repayment burden
    • Government can lower obligation to the IMF and World Bank by directly purchasing Brady bonds
    • Brady bonds can be used as payment method in the privatization process


  • NEGATIVE effects of the Brady plan:
    • Country becomes dependent on IMF / World Bank (shareholder interests)
    • IMF / World Bank can demand actions such as removal of trade barriers, monopolies, or special tax distortions
    • Currency pegged to the euro/dollar


  • In 2002 Bulgaria exchanged the Brady bonds for global bonds =>
    • Bulgaria becomes a real participant in the global economy
    • Bought $5.137 billion worth of Brady bonds for $2.486 billion
    • $135 million collateral released
    • Debt maturity extended in time
    • Debt / GDP ratio decreased -> credit profile increased (14 times)
    • Also shows a country can make it on its own without becoming dependent on the financial institutions (needs excellent management)


South America: Argentina

Action / Circumstance => Result
  • Crisis in 1980 in Latin America leaves Argentina with an outsanding foreing debt => Negotiations with the IMF
  • IMF offers help under certain conditions => Argentina need to replace existing military regime
  • New government elected in 1991 => The peso is tied to the US dollar
  • Peso tied to US dollar:
    • Limited monetary growth and increase in reserves
    • Lower inflation and increasing GDP (7%)


  • Outside factors in 1997 (Crisis in Mexico and Brazil + US dollar depreciates) =>
    • Peso depreciates -> 2001 Argentina crisis
    • Extreme fall in credibility -> major decrease in foreing investments


  • IMF demand payment on debt =>
    • Argentina can choose to stop payments:
      • Unstable markets and more problems for neighbouring countries
    • Argentina pays:
      • Taxes increase and government spending decreases
      • GDP falls and unemplayment rises
      • Riots take the streets


  • Deficit targets not met => IMF simply increases the target percentages so that the country meets the requirements
  • Operating at new targets lead to greater fianacial crisis => IMF issues more loans
  • More loans => More debt
  • More debt => Eventually the country is back where it started, but with higher inflation and unemployment rates
  • IMF demands more productivity (pensions / environmental requirements / severence benefits) => Argentina defects
  • Argentina defects => IMF backs off due to the high-profile status of the country and the february 2004 $88 billion debt
  • IMF admits mistakes => IMF loses credibility and respect


Africa: Nigeria

Action / Circumstance => Result
  • In 1980 Nigeria receives a loan from the Paris Club => Generates an outstanding foreign debt of $19 billion
  • Great debt repayment problems due to:
    • corruption / unstable government
    • poverty / poor agriculture, industry, and infrastructure


  • POSITIVE factor: Nigeria is rich in oil


  • Military dictatorship => Financial institutions refuse negotiations with Nigeria
  • No negotiations with the Paris Club / IMF / World Bank => Interest arrears and penalties accumulated


  • In 2000 Nigeria agrees to IMF demands and starts negotiations => Nigeria receives debt restructuring from the Paris Club and a $1 billion credit from the IMF
  • In 2002 Nigeria fails to meet spending and exchange rate targets => Pulls out of the IMF program


  • Increase in oil exportation, deregulation and partial privatization of the oil industry => GDP increases significanlty in 2005
  • In Novemreb 2005 Nigeria signs a deal with the Paris Club and the IMF to eliminate $30 billion from the $37 billion oustanding debt (under the agreement that it will pay $12 billion in arrears to bilateral creditors) => Nigeria is allowed to buy the remainder of the debt at a discount + agrees to more intensified IMF reviews
  • Increase in IMF control => political and social reforms needed + Nigeria looses some of its financial independance


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