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You never give me your money? Sovereign debt crises, collective action problems, and IMF lending

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  • Marco Committeri

    ()
    (Bank of Italy)

  • Francesco Spadafora

    ()
    (International Monetary Fund)

Abstract

We review the impact of the global financial crisis, and its consequences for the sovereign sector of the euro area, on the international “rules of the game” for dealing with sovereign debt crises. These rules rest on two main pillars. The most important is the IMF’s lending framework (policies, financing facilities, and financial resources), which is designed to support macroeconomic adjustment packages based on the key notion of public debt sustainability. The complementary pillar is represented by such contractual provisions as Collective Action Clauses (CACs) in sovereign bonds, which aim to facilitate coordination among private creditors in order to contain the costs of a debt default or restructuring. We analyze the most significant changes (and their consequences) prompted by the recent crises to the Fund’s lending framework, not only in terms of additional financial resources, new financing facilities (including precautionary ones), and cooperation with euro-area institutions, but also as regards the criteria governing exceptional access to the Fund’s financial resources. We highlight a crucial innovation to these criteria, namely that, for the first time, they now explicitly take account of the risk of international systemic spillovers. Finally, we underscore the need for improved collective governance of systemic fiscal risks, with greater discipline in public finances and market monitoring, expansion of existing financial safety nets, accelerated dissemination of CACs, and new tools to sever the link between sovereign and banking risks.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 143.

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Date of creation: Jan 2013
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Handle: RePEc:bdi:opques:qef_143_01

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Keywords: collective action clauses; sovereign debt restructuring; IMF financing; systemic spillovers;

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  1. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
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  15. Raymond Ritter, 2009. "Transnational governance in global finance - the principles for stable capital flows and fair debt restructuring in emerging markets," Occasional Paper Series 103, European Central Bank.
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Cited by:
  1. Jean Pisani-Ferry & André Sapir & Guntram B. Wolff, . "EU-IMF assistance to euro area countries: an early assessment," Blueprints, Bruegel, number 779, June.
  2. Bardozzetti, Alfredo & Dottori, Davide, 2014. "Collective action clauses: How do they affect sovereign bond yields?," Journal of International Economics, Elsevier, vol. 92(2), pages 286-303.

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