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The Debt Crisis Debate

Nov 1, 2002

The Argentine government's debt default, followed by trouble in other deeply indebted countries, has made the debate over how to handle sovereign debt crises one of the most important topics in the world capital markets. Arnold & Porter's Whitney Debevoise describes how the official sector, investors have positioned themselves on the statutory and contractual approaches. In the end, both will require adjustments.

Whitney Debevoise
Who would have thought that finance ministers and central bank governors of the developed world, and leaders of the International Monetary Fund would have devoted a significant portion of their annual meeting in September to the esoteric subject of bond documentation? The global economic environment is the weakest it has been in a decade, there is a growing gap in development levels worldwide and there is a global war against terrorism. Yet the one-page G-10 communiqué issued at the meeting did not mention these subjects. Instead its longest, central paragraph addressed collective action clauses.

What are collective action clauses (CACs) and why are they getting so much attention? Is the attention deserved and will CACs remain on the agenda going forward?

The official sector has been pursuing initiatives to strengthen the world's financial architecture for some time. Part of the effort focuses on crisis resolution. The...

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