Working Paper: NBER ID: w10095
Authors: Barry Eichengreen; Kenneth Kletzer; Ashoka Mody
Abstract: At the April 2003 meeting of the International Monetary and Financial Committees, it was decided to further encourage the contractual approach to smoothing the process of sovereign debt restructuring by encouraging the more widespread use of collective action clauses (CACs) in international bonds. This decision was shaped partly by Mexico's successful launch of a bond subject to New York law but featuring CACs, and by subsequent issues with similar provisions from other emerging market countries. This paper reviews the developments leading up to that event, its implications, and prospects for the future. It asks whether we can expects to see additional issuance by emerging markets of bonds featuring CACs, whether such a trend would in fact help to make the world a safer financial place, and what additional steps might be taken to further enhance modalities for crisis resolution.
Keywords: collective action clauses; sovereign debt restructuring; emerging markets
JEL Codes: F33; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CACs (Y90) | creditor coordination (G33) |
| creditor coordination (G33) | deadweight costs (J32) |
| CACs (Y90) | deadweight costs (J32) |
| CACs (Y90) | borrowing costs (H74) |
| borrowing costs (H74) | willingness to issue bonds (H74) |
| CACs (Y90) | willingness to issue bonds (H74) |
| CACs (Y90) | stabilization of financial markets (E44) |
| CACs (Y90) | safer financial environment (G28) |
| widespread use of CACs (L96) | safer financial environment (G28) |