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Renegotiation, Collective Action Clauses and Sovereign Debt Markets

Author

Listed:
  • 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.

Suggested Citation

  • Federico Weinschelbaum & Jose Wynne, 2004. "Renegotiation, Collective Action Clauses and Sovereign Debt Markets," Working Papers 75, Universidad de San Andres, Departamento de Economia, revised Aug 2004.
    • Handle: RePEc:sad:wpaper:75
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    References listed on IDEAS

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    More about this item

    Keywords

    Sovereign debt; Collective action clauses; Renegotiation; Moral hazard; International bankruptcy court;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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