Emerging-market bond investors are being caught in something of a pincer action. Impinging from one side is the IMF: hell-bent on destroying their contractual rights and making it easier for countries to default. Closing in on the other side are the countries they've been lending to, and the inevitability that they're going to default increasingly frequently. International bonds, in the wake of Ecuador and Argentina, no longer have an aura of inviolability, and rating agency Standard&Poor's says that sovereign bond defaults are going to rise steadily for the next decade.
More profoundly, bond investors have suddenly found themselves bereft of the power and influence they wielded throughout the 1990s. Back then they had no need of institutionalized creditors' trade associations: everybody kowtowed to them. Creditor countries would happily default to banks and other sovereigns long before contemplating defaulting on their bonds; the official sector looked at the huge private-sector capital flows going into the emerging markets and saw a future in which development was funded by the market and merely catalyzed by the Bretton Woods institutions.
Now, however, a vicious cycle has started. Crises cause capital flows to dry up; as capital flows dry up, bondholders become less important; as bondholders lose importance, they lose power and influence; and, without that leverage, bondholders are likely to continue to exit, further diminishing capital flows.