Renegotiation, Collective Action Clauses and Sovereign Debt Markets

Jose Wynne and Federico Weinschelbaum

No 7, 2004 Meeting Papers from Society for Economic Dynamics

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 Bankrucpty Court (search for similar items in EconPapers)
JEL-codes: F33 F34 G15 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-reg
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Citations: View citations in EconPapers (18)

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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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