How to Prevent and Solve a Classic Sovereign Debt Crisis: Beyond the debate CAC vs. SDRM

Prévenir et résoudre une crise de la dette souveraine: Au-delà du débat entre les CAC et le MRDS

Claire Barraud ()
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Claire Barraud: UGA UFR FEG - Université Grenoble Alpes - Faculté d'Économie de Grenoble - UGA [2016-2019] - Université Grenoble Alpes [2016-2019]

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Abstract: The International Lender of Last Resort (ILLR), in the IMF's body, and the Sovereign Debt Restructuring Mechanism (SDRM) of Anne Krueger have been given up, despite the seniority of the former and the successful design of the latter. Instead, the Collective Action Clauses (CACs) have been chosen as the only way to settle a sovereign debt crisis, in spite of their weakness to only govern restructurings. The purpose of a sovereign debt crisis settlement is not to reach a restructuring agreement only respecting creditors' rights, but to find an outcome to the crisis satisfying creditors' rights and the rehabilitation of the sovereign debtor. Globally, a classic sovereign debt crisis has multiple ins and outs and merits so a global and hybrid mechanism designed step by step, according to existing proposals. Instead, an International Lender of First Resort could distinguish among possible natures and causes of the crisis to bring settlement around the right process. Then only, in case of solvency crisis, CACs could be privileged. But lastly, if CACs fail to reach a reasonable agreement, an arbitration forum, as the one of the SDRM, would be in charge of forcing a decision satisfying all involved parties.

Keywords: Lender of Last Resort; Sovereign debt restructuring; Sovereign debt crises (search for similar items in EconPapers)
Date: 2009-10-30
Note: View the original document on HAL open archive server: https://hal.science/hal-05396200v1
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Published in The World Economy in Crisis: The Return of Keynesianism?, 13th Conference of the Research Network Macroeconomics and Macroeconomic Policies (RNM), Oct 2009, Berlin, Germany

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