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Renegotiation, Collective Action Clauses and Sovereign Debt Markets

Listed author(s):
  • Federico Weinschelbaum

    ()

    (Department of Economics, Universidad de San Andres)

  • Jose Wynne

    (Duke University, Fuqua School of Business)

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
File Function: First version, 2004
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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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  1. Prasanna Gai & Simon Hayes & Hyun Song Shin, 2001. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," LSE Research Online Documents on Economics 25066, London School of Economics and Political Science, LSE Library.
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  12. Barry Eichengreen & Ashoka Mody, 2000. "Would Collective Action Clauses Raise Borrowing Costs?," NBER Working Papers 7458, National Bureau of Economic Research, Inc.
  13. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September.
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  16. Olivier Jeanne, 2009. "Debt Maturity and the International Financial Architecture," American Economic Review, American Economic Association, vol. 99(5), pages 2135-2148, December.
  17. Kenneth Rogoff & Jeromin Zettelmeyer, 2002. "Bankruptcy Procedures for Sovereigns: A History of Ideas, 1976-2001," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 1-8.
  18. Marcus H. Miller, 2002. "Sovereign Debt Restructuring: New Articles, New Contracts--Or No Change?," Policy Briefs PB02-03, Peterson Institute for International Economics.
  19. Kenneth Kletzer, 2003. "Sovereign Bond Restructuring; Collective Action Clauses and official Crisis Intervention," IMF Working Papers 03/134, .
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