We propose a solution that is similar to the “Brady Bonds,” used to prevent default in a number of Latin American countries. In the mid-1980s, Mexico and a number of other Latin American countries faced debt crises. In 1988, Mexico offered to exchange its debt obligations with new bonds that were collateralized by a thirty-year zero-coupon US Treasury bond. New bonds were issued by Mexico at market prices reflecting a discount of about 30% at which the old bonds were trading. Seventeen Latin American and other countries followed the initiative with similar plans. The bonds became known as “Brady bonds” after Nicholas Brady, then US Treasury Secretary
