AT THE END of February, Mexico, the most
important bond issuer in Latin America, stunned the market
with a new $1 billion bond that included collective action
clauses (CACs). At a stroke, the sovereign had answered the
most pressing question facing the emerging-market debt asset
class: could it create a mechanism for sovereign workouts or
not?
The bond was oversubscribed and Mexico made it clear that from
now on CACs will appear in every bond it issues. CACs now seem
certain to be included in forthcoming bonds from Uruguay, and will
probably appear in Korea's next issue. In the case of Latin
America, the hope is that these clauses will clear the way for
capital to start flowing into the region again.
It's the culmination of a long debate. As one treasury official
said at the annual meeting of the Inter-American Development Bank
in Milan last month: "I love talking about this...
