A bond that is issued by a developing country or a less developed country (LDC) as a voluntary debt relief on the part of its creditor bank following a restructuring of a defaulted debt owed to that bank. The debtor nation negotiates with its creditor bank/ banks to restructure any nonperforming loans in such a way that the bank accepts to exchange such loans for bonds offered by the debtor government. The issued bonds are collateralized by United States Treasury obligations.
Brady bonds were introduced in a U.S government initiative announced by Nicholas Brady, the then-U.S secretary of Treasury in March 1989. A special program, called the Brady plan urged the U.S and multilateral lending institutions (such as the International Monetary Fund and the World Bank) to work , along with commercial bank creditors, to restructure the nonperforming loans of those developing countries pursuing structural adjustments to their economies through supranational financial institutions.
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