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You Never Give Me Your Money? Sovereign Debt Crises, Collective Action Problems, and IMF Lending

  • Marco Committeri
  • Francesco Spadafora

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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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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  1. 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.
  2. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development 59, Boston University, Institute for Economic Development.
  3. Paolo Mauro & Yishay Yafeh, 2003. "The Corporation of Foreign Bondholders," IMF Working Papers 03/107, International Monetary Fund.
  4. Leszek Balcerowicz, 2010. "Sovereign Bankruptcy in the European Union in the Comparative Perspective," Working Paper Series WP10-18, Peterson Institute for International Economics.
  5. 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.
  6. 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, March.
  7. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  8. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
  9. 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.
  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. 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.
  12. Benjamin M. Friedman, 2000. "Debt Restructuring," NBER Working Papers 7722, National Bureau of Economic Research, Inc.
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