Social and Behavioral Sciences Commons^™

Resolving Sovereign Debt: Collective Action Clauses Or The Sovereign Debt Restructuring Mechanism, Shalendra Sharma

Politics

When sovereign debt restructuring or debt reduction becomes unavoidable, what is the appropriate regime that can provide for an orderly restructuring, while at the same time protecting the rights of both creditors and the debtor? 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 …