Would Collective Action Clauses Raise Borrowing Costs? An Update and Additional Results
It is easy to say that the International Monetary Fund should not resort to financial rescue for countries in crisis; this is hard to do when there is no alternative. That is where collective action clauses come in. Collective action clauses are de...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/06/437226/would-collective-action-clauses-raise-borrowing-costs-update-additional-results http://hdl.handle.net/10986/19839 |
| Summary: | It is easy to say that the International
Monetary Fund should not resort to financial rescue for
countries in crisis; this is hard to do when there is no
alternative. That is where collective action clauses come
in. Collective action clauses are designed to facilitate
debt restructuring by the principals - borrowers, and
lenders - with minimal intervention by international
financial institutions. Despite much discussion of this
option, there has been little action. Issues of bonds fear
that collective action clauses would raise borrowing costs.
The authors update earlier findings about the impact of
collective action clauses on borrowing costs. It has been
argued that only in the past year or so, have investors
focused on the presence of these provisions, and that, given
the international financial institutions' newfound
resolve to "bail in" investors, they now regard
these clauses with trepidation. Extending their data to
1999, the authors find no evidence of such changes, but
rather the same pattern as before: Collective action clauses
raise the costs of borrowing for low-rated issuers, but
reduce them for issuers with good credit ratings. Their
results hold both for the full set of bonds and for bonds
issued only by sovereigns. They argue that these results
should reassure those who regard collective action clauses
as an important element in the campaign to strengthen
international financial architecture. |
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