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Renegotiation, Collective Action Clauses and Sovereign Debt Markets

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  • Federico Weinschelbaum

    ()
    (Department of Economics, Universidad de San Andres)

  • Jose Wynne

    (Duke University, Fuqua School of Business)

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.

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File URL: ftp://webacademicos.udesa.edu.ar/pub/econ/doc75.pdf
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Bibliographic Info

Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 75.

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Length: 40 pages
Date of creation: Aug 2004
Date of revision: Aug 2004
Handle: RePEc:sad:wpaper:75

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Keywords: Sovereign debt; Collective action clauses; Renegotiation; Moral hazard; International bankruptcy court;

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References

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  1. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, Econometric Society, vol. 59(4), pages 1069-89, July.
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  3. Marcus H. Miller & Lei Zhang, 1999. "Sovereign Liquidity Crisis: The Strategic Case for A Payments Standstill," Working Paper Series, Peterson Institute for International Economics WP99-8, Peterson Institute for International Economics.
  4. Marcus H. Miller, 2002. "Sovereign Debt Restructuring: New Articles, New Contracts--Or No Change?," Policy Briefs PB02-03, Peterson Institute for International Economics.
  5. Olivier Jeanne, 2004. "Debt Maturity and the International Financial Architecture," IMF Working Papers 04/137, International Monetary Fund.
  6. Barry Eichengreen & Ashoka Mody, 2000. "Would Collective Action Clauses Raise Borrowing Costs?," NBER Working Papers 7458, National Bureau of Economic Research, Inc.
  7. Giancarlo Corsetti & Bernardo Guimaraes & Nouriel Roubini, 2003. "International Lending of Last Resort and Moral Hazard: A Model of IMF's Catalytic Finance," NBER Working Papers 10125, National Bureau of Economic Research, Inc.
  8. Corsetti, Giancarlo & Guimarães, Bernardo & Roubini, Nouriel, 2004. "International Lending of Last Resort and Moral Hazard: A Model of the IMF's Catalytic Finance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4383, C.E.P.R. Discussion Papers.
  9. Richards, Anthony & Gugiatti, Mark, 2003. "Do Collective Action Clauses Influence Bond Yields? New Evidence from Emerging Markets," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 6(3), pages 415-47, Winter.
  10. Sayantan Ghosal & Marcus Miller, 2003. "Co-ordination Failure, Moral Hazard and Sovereign Bankruptcy Procedures," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(487), pages 276-304, 04.
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  15. Stephen Morris & Hyun Song Shin, 2003. "Catalytic Finance: When Does It Work?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1400, Cowles Foundation for Research in Economics, Yale University.
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  17. Kenneth Kletzer, 2003. "Sovereign Bond Restructuring," IMF Working Papers 03/134, International Monetary Fund.
  18. Becker, Torbjorn & Richards, Anthony & Thaicharoen, Yunyong, 2003. "Bond restructuring and moral hazard: are collective action clauses costly?," Journal of International Economics, Elsevier, Elsevier, vol. 61(1), pages 127-161, October.
  19. Haldane, Andrew G. & Penalver, Adrian & Saporta, Victoria & Shin, Hyun Song, 2005. "Analytics of sovereign debt restructuring," Journal of International Economics, Elsevier, Elsevier, vol. 65(2), pages 315-333, March.
  20. 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.
  21. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2003. "Crisis Resolution: Next Steps," Santa Cruz Department of Economics, Working Paper Series qt4cj974r4, Department of Economics, UC Santa Cruz.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Just What Is It that Makes Them So Different, So Appealing?
    by ELY in Blog de Eduardo Levy Yeyati on 2010-03-23 23:59:00
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Cited by:
  1. Ghosal, Sayantan & Miller, Marcus & Thampanishvong, Kannika, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-100, Scottish Institute for Research in Economics (SIRE).
  2. Sayantan Ghosal & Marcus Miller & Kannika Thampanishvong, 2010. "Delay and Haircuts in Sovereign Debt: Recovery and Sustainability," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201015, Centre for Dynamic Macroeconomic Analysis.
  3. Ghosal, Sayantan & Thampanishvong, Kannika, 2009. "Does strengthening Collective Action Clauses (CACs) help?," The Warwick Economics Research Paper Series (TWERPS) 895, University of Warwick, Department of Economics.
  4. Goderis, Benedikt & Wagner, Wolf, 2009. "Credit Derivatives and Sovereign Debt Crises," MPRA Paper 17314, University Library of Munich, Germany.
  5. Yan Bai & Jing Zhang, 2009. "Duration of Sovereign Debt Renegotiation," Working Papers, Research Seminar in International Economics, University of Michigan 593, Research Seminar in International Economics, University of Michigan.
  6. Yue, Vivian Z., 2010. "Sovereign default and debt renegotiation," Journal of International Economics, Elsevier, Elsevier, vol. 80(2), pages 176-187, March.
  7. Roberto Cortes Conde, 2008. "Spanish America Colonial Patterns: The Rio de La Plata," Working Papers, Universidad de San Andres, Departamento de Economia 96, Universidad de San Andres, Departamento de Economia, revised Mar 2008.
  8. Bardozzetti, Alfredo & Dottori, Davide, 2014. "Collective action clauses: How do they affect sovereign bond yields?," Journal of International Economics, Elsevier, Elsevier, vol. 92(2), pages 286-303.
  9. Stephen Quinn, 2008. "Securitization of Sovereign Debt: Corporations as a Sovereign Debt Restructuring Mechanism in Britain, 1694-1750," Working Papers, Texas Christian University, Department of Economics 200701, Texas Christian University, Department of Economics.
  10. Alfredo Bardozzetti & Davide Dottori, 2013. "Collective action clauses: how do they weigh on sovereigns?," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 897, Bank of Italy, Economic Research and International Relations Area.
  11. Karel Janda, 2009. "Bankruptcies With Soft Budget Constraint," Manchester School, University of Manchester, vol. 77(4), pages 430-460, 07.
  12. Ran Bi, 2008. ""Beneficial" Delays in Debt Restructuring Negotiations," 2008 Meeting Papers 766, Society for Economic Dynamics.
  13. Rohan Pitchford & Mark L. J. Wright, 2010. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," NBER Working Papers 16632, National Bureau of Economic Research, Inc.
  14. Prokop, Jacek, 2012. "Bargaining over debt rescheduling," MPRA Paper 44315, University Library of Munich, Germany.
  15. Patrick Bolton & Olivier Jeanne, 2009. "Structuring and Restructuring Sovereign Debt: The Role of Seniority -super-1," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 879-902.
  16. Canuto, Otaviano & Pinto, Brian & Prasad, Mona, 2012. "Orderly sovereign debt restructuring : missing in action !," Policy Research Working Paper Series 6054, The World Bank.

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