Collective Action Clauses in International Sovereign Bond Contracts - Whence the Opposition?

Journal of Economic Surveys, Vol. 23, No. 5

42 Pages Posted: 12 Jul 2007 Last revised: 11 Mar 2014

Sönke Häseler

University of Hamburg

Date Written: 2007

Abstract

The universal adoption of collective action clauses (CACs) was the most promising reform proposal in recent debates on sovereign debt crisis management. Academics and the official sector had been promoting CACs at least since 1995, yet market practice did not begin to change until 2003. This delay is often attributed to investors’ and sovereign borrowers’ opposition to CACs.
This paper evaluates the publicly stated as well as the suspected private motives of the two sides to block the spread of CACs. It draws on a wide range of existing evidence and adds some new theoretical considerations to show that there is no reason to be sceptical of CACs unless bailouts exist as an alternative crisis resolution mechanism. This conclusion may be of interest purely for the sake of historical accuracy. But more importantly, it may help to better understand and assess any potential future resistance from market participants, e.g. in the process of introducing CACs in bonds governed by German law.

Keywords: sovereign debt restructuring, collective action clauses

JEL Classification: F34, K33, K12

Suggested Citation

Häseler, Sönke, Collective Action Clauses in International Sovereign Bond Contracts - Whence the Opposition? (2007). Journal of Economic Surveys, Vol. 23, No. 5. Available at SSRN: https://ssrn.com/abstract=998230

Sönke Häseler (Contact Author)

University of Hamburg ( email )

Institute of Law and Economics
Johnsallee 35
20148 Hamburg
Germany

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