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Collective Action Clauses in International Sovereign Bond Contracts – Whence the Opposition?

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  • Soenke Haeseler

    (Institute of Law & Economics, Hamburg University)

Abstract

In the debate on strengthening the international financial architecture, which peaked in 2002 after a series of emerging market sovereign debt crises, the universal adoption of collective action clauses (CACs) was the most promising reform proposal. Academics and the official sector had been promoting CACs at least since 1995, yet market practice did not begin to change until 2003. This delay is often attributed to the opposition of investors and sovereign borrower to CACs.This paper evaluates the publicly stated as well as the suspected private motives of the two sides to block the spread of CACs. It draws on a wide range of existing evidence and adds some new theoretical considerations to show that there is no reason to be sceptical of CACs unless bailouts exist as an alternative crisis resolution mechanism. This conclusion may be of interest purely for the sake of historical accuracy. But more importantly, it may help to better understand any potential future resistance by market participants, e.g. in the process of introducing CACs in bonds governed by German law.

Suggested Citation

  • Soenke Haeseler, "undated". "Collective Action Clauses in International Sovereign Bond Contracts – Whence the Opposition?," German Working Papers in Law and Economics 2007-2-1199, Berkeley Electronic Press.
    • Handle: RePEc:bep:dewple:2007-2-1199
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    File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1199&context=gwp
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    Cited by:

    1. Häseler, Sönke, 2008. "Individual Enforcement Rights in International Sovereign Bonds," MPRA Paper 11518, University Library of Munich, Germany.
    2. Charles B. Blankart & Erik R. Fasten, 2009. "Wer soll für die Schulden im Bundesstaat haften? Eine vernachlässigte Frage der Föderalismusreform II," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(1), pages 39-59, February.

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