Resolving sovereign debt : collective action clauses or the sovereign debt restructuring mechanism
Document Type
Journal article
Source Publication
Journal of World Trade
Publication Date
8-1-2004
Volume
38
Issue
4
First Page
627
Last Page
646
Abstract
The recent wave of sovereign default has underscored the limits of the current market-based regime. Recently two alternative approaches propose a contractual approach by way of the introduction of collective action clauses (CAC) in bond contracts, and a statutory approach put forward by the International Monetary Fund (IMF), which calls for the establishment of an international debt restructuring mechanism (called the sovereign debt restructuring mechanism or SDRM) that would have many of the features of an international bankruptcy regime. This paper assesses the two crisis-resolution mechanisms. It shows that although no consensus exists on whether the best approach about how to manage and resolve sovereign debt crises is to promote the use of collective action clauses, or to create a statutory mechanism, it is, nevertheless, evident that the SDRM is shelved for the time being. It examines the reasons for this, and argues that to the contrary, a complementary approach that combines elements of both the CAC and the SDRM (now proposed by the IMF) has the potential to help reduce the unacceptably large costs associated with disorderly defaults by sovereign governments whose debt burdens have become unsustainable.
Print ISSN
10116702
E-ISSN
22102795
Publisher Statement
Copyright © 2004 Kluwer Law International
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Sharma, S. D. (2004). Resolving sovereign debt: Collective action clauses or the sovereign debt restructuring mechanism. Journal of World Trade, 38(4), 627-646.