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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
  • Francesco Spadafora

Abstract

We review the impact of the global financial crisis, and its spillovers into 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 discuss how the recent crises have provided new political support for a broader dissemination of CACs in euro-area sovereign bonds. Importantly, in the first case involving an advanced economy, CACs were activated in the debt exchange undertaken by Greece in Spring 2012.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/20.

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Length: 50
Date of creation: 22 Jan 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/20

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Keywords: Sovereign debt; Financial crisis; Concessional aid; Fund role; Collective action clauses; Debt restructuring; Sovereign debt restructuring; IMF financing; Systemic spillovers; debt crises; sovereign debt crises; sovereign bonds; debt crisis; debt sustainability; sovereign debt crisis; sovereign debtors; private creditors; public debt; debt burden; debt exchange; debt default; sovereign borrowers; balance of payments; debt renegotiation; debtor country; official creditors; liquidity crises; external financing; central bank; debt exchanges; debt problems; external debt; sovereign default; public finances; sovereign debts; debtor countries; international lending; debt market; bilateral contributions; payment arrears; central banks; repayments; debt contracts; private debt; government debt; sovereign defaults; short-term debt; debt sustainability analyses; debt relief; debt situation; repurchases; imf credit outstanding;

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  1. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc.
  2. Raffaela Giordano & Pietro Tommasino, 2009. "What determines debt intolerance? The role of political and monetary institutions," Temi di discussione (Economic working papers) 700, Bank of Italy, Economic Research and International Relations Area.
  3. Eduardo Borensztein & Ugo Panizza, 2008. "The Costs of Sovereign Default," IMF Working Papers 08/238, International Monetary Fund.
  4. Paolo Mauro & Yishay Yafeh, 2003. "The Corporation of Foreign Bondholders," IMF Working Papers 03/107, International Monetary Fund.
  5. Kenneth Rogoff & Jeromin Zettelmeyer, 2002. "Bankruptcy Procedures for Sovereigns: A History of Ideas, 1976-2001," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 8.
  6. 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.
  7. Michael Bradley & James D. Cox & Mitu Gulati, 2010. "The Market Reaction to Legal Shocks and Their Antidotes: Lessons from the Sovereign Debt Market," The Journal of Legal Studies, University of Chicago Press, vol. 39(1), pages 289-324, 01.
  8. Andrew G Haldane & Adrian Penalver & Victoria Saporta & Hyun Song Shin, 2003. "Analytics of sovereign debt restructuring," Bank of England working papers 203, Bank of England.
  9. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
  10. Alfredo Bardozzetti & Davide Dottori, 2013. "Collective action clauses: how do they weigh on sovereigns?," Temi di discussione (Economic working papers) 897, Bank of Italy, Economic Research and International Relations Area.
  11. Jeromin Zettelmeyer & Kenneth Rogoff, 2002. "Bankruptcy Procedures for Sovereigns," IMF Working Papers 02/133, International Monetary Fund.
  12. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  13. Benjamin M. Friedman, 2000. "Debt Restructuring," NBER Working Papers 7722, National Bureau of Economic Research, Inc.
  14. Leszek Balcerowicz, 2010. "Sovereign Bankruptcy in the European Union in the Comparative Perspective," Working Paper Series WP10-18, Peterson Institute for International Economics.
  15. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
  16. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
  17. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
  18. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
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Cited by:
  1. 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.
  2. Jean Pisani-Ferry & André Sapir & Guntram B. Wolff, . "EU-IMF assistance to euro area countries: an early assessment," Blueprints, Bruegel, number 779, June.

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