Investment Funds and Debt-Equity Swaps: Broadening the Base of a New Financial Tool

This article first examines the emergence of several new market-oriented mechanisms that could help relieve both the ominous “debt overhang” confronting many developing countries and equally ominous financial exposure of commercial banks. Prominent among these mechanisms are debt-equity swaps (or debt-for-equity conversions), which are examined in this article with a view of assessing their potential impact on the economic outlook for a number of developing countries. Particular emphasis will be placed in this article on the recent establishment of investment funds with debt-equity conversion framework and on the differences between these funds and the more traditional country-fund approach that has been developed in countries like Korea and Thailand