Insuring emerging markets

8 The Journal of financial transformation As a result of domestic and external factors, capital flows to emerging market economies are highly volatile. All too often, these economies experience severe financial distress, which in some instances lead them to the country-equivalent of bankruptcy. Recently, the IMF and the U.S. Treasury have come up with plans to facilitate an orderly restructuring of liabilities during periods of sovereigns’ distress. The IMF, taking no shortcuts, advocates a full-blown International Bankruptcy Procedure, using Chapters 9 and 11 from U.S. municipal and corporate bankruptcy laws as the benchmark. The U.S. Treasury‘s response is more subdued: it only wants mandatory collective action clauses (CACs) on all sovereign bonds. These are welcome proposals and eventually will be polished enough to represent important contributions to global financial stability.