Rethinking Sovereign Debt: Politics, Reputation, and Legitimacy in Modern Finance
Rethinking Sovereign Debt: Politics, Reputation, and Legitimacy in Modern Finance, Harvard University Press (excerpts) 2014
18 Pages Posted: 25 Mar 2015
Date Written: 2014
This book challenges the prevalent assumption that sovereign debt must be repaid — even after a major regime change — in order to maintain country creditworthiness. It argues that this conventional wisdom is overly simplistic and in some cases entirely wrong, and contends that its underlying assumptions of political neutrality, creditor uniformity, and historical constancy all fall away upon closer inspection. It points out that practices of sovereign debt and reputation are rendered intelligible only with reference to the highly politicized idea of ‘sovereignty,’ and argues that these practices necessarily diverge depending on the approach to sovereignty adopted. Furthermore, the book highlights that creditor uniformity cannot simply be assumed, and in fact different creditors may view — and historically have viewed — the same debt repudiation in opposing ways. It contends that the post-World War I cases of the Soviet Union and Costa Rica have been misinterpreted, used to suggest the constancy of finance while in fact they demonstrate quite the opposite — that creditors can reasonably make reputational judgments in favor of post-repudiation lending. It goes on to argue that the consolidation of repayment norms through the twentieth century resulted not from economic inevitabilities but rather from changing political and ideological structures, shifts in creditor interactions, and decisions made by major institutions such as the World Bank. In short, the book highlights how seemingly rigid practices in international political economy can in fact depend upon contested and historically variable theoretical constructs. It provides a fascinating and surprising reconstruction of key norms in international affairs as well as a powerful challenge to prevailing expectations in the sovereign debt arena.
Keywords: sovereign debt; creditworthiness; debt repudiation; odious debt; international political economy; international law; international political economy; sovereignty; law and politics; economic history
JEL Classification: B25, F34, H63, H77, K33, N00, N20, O19, O57
Suggested Citation: Suggested Citation