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Extension Restructuring and
Welfare Effects of Outstanding Debts of LGFPs
XU Youchuan, LIU Hongzhong
2020, 29 (6):
1034-1042.
doi: 10.3969/j.issn.1005-2542.2020.06.002
In the debt structure of
Local Government Financing Platforms (LGFPs), LGFPs are the nominal debtors
while local governments are implicit contingent debtors. In the debt extension
restructuring of LGFPs, whether local governments acknowledge or implement
their contingent guarantee obligations may change the repayment source of LGFPs
and affect the repayment expectation of banks. This paper describes the effects
of the implicit compensation expectation of local governments on the debt
extension modes and related welfares. It is concluded that when the renewal
debt is expected to be difficult to get paid, LGFPs will prefer
“self-repayment-style debt extension” which is paid off only by LGFPs, but
banks prefer “compound-style debt extension” which is paid off jointly by LGFPs
and local governments. In this case, LGFPs are inclined to leave aside the
contingent guarantee obligations of local governments, but banks are eager to
implement the aforementioned obligations. Besides, when the renewal debt is
expected to be fully paid off, LGFPs will prefer “compound-style debt
extension”, but banks prefer “self-repayment-style debt extension”. It seems
that banks prefer the enhancement and improvement of the self-repayment ability
of LGFPs, rather than the additional supplement of local governments in the way
of improving solvency. Moreover, from the perspective of LGFPs and banks, the
“compound-style debt extension” is better than “self-repayment-style debt
extension”. As a co-decision maker, they have strong incentives to take
advantage of the interests of local governments. Furthermore, although debt
extension contributes to temporarily ease the repayment pressure of LGFPs and
create time or conditions to regain solvency etc., it can only adjust the
distribution structure of related welfares but does not help to improve the
overall welfare of all participants.
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