The months after Anne Kreuger's announcement, in late 2001, that the IMF would promote a formal debt-restructuring framework were a heady time for those who believed that sovereign bankruptcy would improve the sovereign debt markets. Since then, however, the proposed Sovereign Debt Restructuring Mechanism has been shelved, the Argentine debt crisis has been resolved and sovereign bankruptcy has dropped off the radar.
It is tempting to conclude that the sovereign bankruptcy debate was just a temporary sideshow, with no lasting effect on international finance. This view is understandable - many insiders saw the push for a permanent sovereign bankruptcy framework as quixotic from the outset - but it seriously misreads the times. The debate over sovereign bankruptcy had immediate, tangible and more general effects on sovereign debt markets. It laid the groundwork for widespread adoption of collective action clauses (CACs) in sovereign bonds that are governed by New York law....