Resolution of Sovereign Debt Crises: The New Old Framework

26 Pages Posted: 6 Jan 2005

See all articles by Richard Portes

Richard Portes

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: October 2004

Abstract

The Paper sets out the principles that should underlie sovereign debt restructuring. It argues for a rules-based approach to achieve private sector involvement in restructuring. The rules must operate, however, in the context of an appropriate institutional framework with appropriate incentives. The markets cannot and will not create these institutions without some official intervention. The Paper discusses why intervention in the form of a Sovereign Debt Restructuring Mechanism has been shelved. It goes on to consider a new institutional framework, with a permanent bondholders' committee and collective action clauses (CACs) in bond contracts. It stresses the need for uniformity in CACs. After interpreting the views of market participants on CACs, the Paper concludes with an argument for official intervention to make CACs universal.

Keywords: Collective action clauses, financial crises, sovereign debt

JEL Classification: F33, F34

Suggested Citation

Portes, Richard, Resolution of Sovereign Debt Crises: The New Old Framework (October 2004). Available at SSRN: https://ssrn.com/abstract=644241

Richard Portes (Contact Author)

London Business School - Department of Economics ( email )

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HOME PAGE: http://faculty.london.edu/rportes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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