Game Theory Analysis

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

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

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

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

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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