Calm after the storm
Sovereign debt restructuring has been hotly debated for years. Paradoxically, though, two of the elements most fought over – collective action clauses and exit consents – seem now to have been accepted with equanimity. • Felix Salmon reports
AFTER MANY YEARS of noisy and contentious debate about mechanisms for restructuring the bonds of troubled emerging-market sovereign debtors, matters came to a head in April. Mexico retired the last of its dollar Brady bonds and issued $2.5 billion in new global bonds with collective action clauses (CACs). Uruguay announced that it was looking to issue billions of dollars of new bonds with CACs, as part of a restructuring effort. And in the US, Treasury secretary John Snow administered the coup de grâce to the IMF's plans for an international sovereign bankruptcy court enshrined in international law.
The reaction to these events was astonishing: nothing happened. Press conferences weren't called, outraged op-ed columns didn't run, the beginning of a new era in crisis resolution was not proclaimed. Admittedly, there was a small war on at the time. Even so, the equanimity with which this new world order was accepted stood in stark contrast to the ferocity of the debate surrounding its inception.
Uruguay's use of CACs seems to have set a precedent for making them standard practice. Chilean finance minister Nicolas Eyzaguirre, for example, says that "countries with investment-grade ratings benefit from CACs without paying an extra amount", which seems like a clear statement that if and when Chile comes to market again, it will include CACs in its bonds.