As more developing countries tap international financial markets and more countries draw upon alternative sources for sovereign financing, the number of countries for which a more comprehensive approach to debt crisis workouts is needed may grow, especially in a challenging global environment. The Monterrey Consensus welcomed consideration of an international debt workout mechanism. Since then, international agreements have focused on market-based solutions, such as contractual clauses in bond contracts.
The Addis Agenda specifically:
- Affirms the importance of debt restructurings being timely, orderly, effective, fair and negotiated in good faith.
- Welcomes reforms to pari passu and collective action clauses proposed by International Capital Market Association
- Encourages countries, particularly those issuing bonds under foreign law, to take further actions to include those clauses in all their bond issuance
- Recognizes the “Paris Forum” initiative by Paris Club
- Takes note of ongoing discussion of debt issues at the IMF and the United Nations
Latest developments
The international community has struggled to devise better processes and standards for resolving sovereign insolvencies (see also Debt crisis resolution). In the absence of a more systemic and multilateral solution, the current focus of policy making to resolve sovereign insolvencies has been on contractual solutions, such as the inclusion of enhanced collective action clauses (CACs) in bond contracts. The new standard is a “single-limb” aggregated voting mechanism, which allows a qualified majority of bondholders across all bond series to bind an uncooperative minority in any of the bond series to the terms of a proposed restructuring. According to the most recent IMF progress report on sovereign debt, published in March 2019, almost 90 per cent of all bonds issued under New York and English law since these clauses were first introduced now include them.