Brady Plan

854 WordsJul 13, 20094 Pages
As a result, it was the US in its leadership role who attempted to address the crisis in the forms of the ‘Baker Plan’ and the ‘Brady Plan’. The Baker Plan In 1985, the US Treasury Secretary, James Baker formulated a plan that was aimed at encouraging economic growth through a means of economic policy reform and the issuance of new monetary funds to fifteen of the most highly indebted third world countries. The ‘Baker Plan’, proposed injecting new bank loans to the amounts of $20 billions dollars, which envisaged these fifteen countries then overcoming their debt problems. The ‘Baker Plan’ was not overly successful in reducing debt or allowing those fifteen countries to overcome their debt as it had been intended. The ‘ Baker Plan’ failed to provide adequate incentives for developing countries to implement consistent economic policy reform or for the banks to issue new monetary funds. The Brady Plan As the ‘Baker Plan’ had been deemed a failure, the then US Treasury Secretary, Nicholas Brady developed a plan in which there would be an incentives for the banks to make voluntary reductions in the outstanding debit for those developing countries that were burdened in heavy debt and to also provide them with an injection of new monetary funds. The ‘Brady Plan’ was to provide credit in return for International Monetary Fund sanctioned structural reforms. Those countries involved in the ‘Brady Plan’ were required to implement fundamental changes that would provide for investment, savings and foster capital repatriation. With the use of the International Monetary Fund in the ‘Brady Plan’ countries had to negotiate its Paris Club debt prior to renegotiating its commercial bank debt. This was to be in line with each countries IMF, sanctioned stabilization plan. The ‘ Brady Plan’, also required that banks and debtor countries resolve or negotiate their

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