Renegotiation, Collective Action Clauses and Sovereign Debt Markets

José Wynne and Federico Weinschelbaum

No 153, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: Collective action clauses (CACs) are provisions specifying that a supermajority of bondholders can change the terms of a bond. We study how CACs determine governments’ fiscal incentives, sovereign bond prices and default probabilities in environments with and without contingent debt and IMF presence. We claim that CACs are likely to be an irrelevant dimension of debt contracts in current sovereign debt markets because of the variety of instruments utilized by sovereigns and the implicit IMF guarantee. Nonetheless, under a new international bankruptcy regime like that recently proposed by the IMF, CACs can increase significantly the cost of borrowing for sovereigns, contrary to what is suggested in previous empirical literature

Keywords: Sovereign debt; Collective action clauses; Renegotiation; Moral hazard; International bankruptcy court. (search for similar items in EconPapers)
JEL-codes: F33 F34 G15 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Renegotiation, collective action clauses and sovereign debt markets (2005)
Working Paper: Renegotiation, Collective Action Clauses and Sovereign Debt Markets (2004)
Working Paper: Renegotiation, Collective Action Clauses and Sovereign Debt Markets (2004)
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