Rethinking Sovereign Debt : Politics, Reputation, and Legitimacy in Modern Finance

Why do we think that sovereign debt must be repaid--even after a major regime change--in order to maintain country creditworthiness? In a fascinating and highly original book, Odette Lienau argues that this conventional wisdom is overly simplistic and in some respects entirely wrong. Using cases and institutional analysis drawn from across the last century--from the Soviet repudiation of tsarist loans to Iraq's debt restructuring after the fall of Saddam Hussein--Lienau challenges what she calls the norm of debt continuity, and contends that its underlying assumptions of political neutrality, creditor uniformity, and historical constancy all fall away upon closer inspection. Through a sophisticated account of the modern sovereign debt regime, the book asserts that debt continuity is not essential for functioning international capital markets, and demonstrates how it relies on ideas of absolutist government that have come under fire over the last century. Lienau incorporates a wealth of original research to argue that creditor uniformity cannot simply be assumed, and that in fact different creditors may view--and historically have viewed--the same debt repudiation in opposing ways. She argues that the consolidation of repayment norms through the twentieth century and into the twenty-first resulted not from economic inevitabilities but rather from changing political and ideological structures, shifts in creditor interactions, and decisions made by private market actors and major institutions such as the World Bank. Taken as a whole, the result is a remarkable reconstruction of international finance and a powerful challenge to prevailing expectations in sovereign debt. "Conventional wisdom holds that all nations must repay debt. Regardless of the legitimacy of the regime that signs the contract, a country that fails to honor its loan obligations damages its reputation, inviting still greater problems down the road. Yet difficult dilemmas arise from this assumption. Should today's South Africa be responsible for apartheid-era debt? Is it reasonable to tether postwar Iraq with Saddam Hussein's excesses? Rethinking Sovereign Debt is a probing historical analysis of how sovereign debt continuity - the rule that nations should repay loans even after a major regime change or expect reputational consequences - became the consensus approach. Odette Lienau contends that the practice is not essential for functioning international capital markets, and demonstrates how it relies on ideas of absolutist government that have come under fire over the last century. Challenging previous accounts, Lienau incorporates a wealth of original research to argue that Soviet Russia's repudiation of Tsarist debt and Great Britain's 1923 arbitration with Costa Rica hint at the feasibility of selective debt cancellation. She traces the notion of debt continuity from the post-World War I era to the present, emphasizing the role of government officials, the World Bank, and private-market actors in shaping our existing framework. Lienau calls on scholars and policymakers to recognize political choice and historical precedent in sovereign debt and reputation, in order to move beyond an impasse when a government is overthrown"--Unedited summary from book jacket "Conventional wisdom holds that all nations must repay debt. Regardless of the legitimacy of the regime that signs the contract, a country that fails to honor its loan obligations damages its reputation, inviting still greater problems down the road. Yet difficult dilemmas arise from this assumption. Should today's South Africa be responsible for apartheid-era debt? Is it reasonable to tether postwar Iraq with Saddam Hussein's excesses? Rethinking Sovereign Debt is a probing historical analysis of how sovereign debt continuity - the rule that nations should repay loans even after a major regime change or expect reputational consequences - became the consensus approach. Odette Lienau contends that the practice is not essential for functioning international capital markets, and demonstrates how it relies on ideas of absolutist government that have come under fire over the last century. Challenging previous accounts, Lienau incorporates a wealth of original research to argue that Soviet Russia's repudiation of Tsarist debt and Great Britain's 1923 arbitration with Costa Rica hint at the feasibility of selective debt cancellation. She traces the notion of debt continuity from the post-World War I era to the present, emphasizing the role of government officials, the World Bank, and private-market actors in shaping our existing framework. Lienau calls on scholars and policymakers to recognize political choice and historical precedent in sovereign debt and reputation, in order to move beyond an impasse when a government is overthrown"-- Provided by publisher Main Description:Conventional wisdom holds that all nations must repay debt. Regardless of the legitimacy of the regime that signs the contract, a country that fails to honor its loan obligations damages its reputation, inviting still greater problems down the road. Yet difficult dilemmas arise from this assumption. Should today's South Africa be responsible for apartheid-era debt? Is it reasonable to tether postwar Iraq with Saddam Hussein's excesses? Rethinking Sovereign Debt is a probing historical analysis of how sovereign debt continuity--the rule that nations should repay loans even after a major regime change, or expect reputational consequences--became the consensus approach. Odette Lienau contends that the practice is not essential for functioning international capital markets, and demonstrates how it relies on ideas of absolutist government that have come under fire over the last century. Challenging previous accounts, Lienau incorporates a wealth of original research to argue that Soviet Russia's repudiation of Tsarist debt and Great Britain's 1923 arbitration with Costa Rica hint at the feasibility of selective debt cancellation. She traces the notion of debt continuity from the post-World War I era to the present, emphasizing the role of government officials, the World Bank, and private-market actors in shaping our existing framework. Lienau calls on scholars and policymakers to recognize political choice and historical precedent in sovereign debt and reputation, in order to move beyond an impasse when a government is overthrown Should South Africa be responsible for apartheid-era debt? Should Iraq be tied to Saddam Hussein's excesses? Odette Lienau shows that sovereign debt continuity--the rule that nations must repay loans even after a regime change--relies on absolutist ideas, and explains why the practice is not essential for functioning capital markets. Should South Africa be responsible for apartheid-era debt? Should Iraq be tied to Saddam Hussein's excesses? The author shows that sovereign debt continuity - the rule that nations must repay loans even after a regime change - relies on absolutist ideas, and explains why the practice is not essential for functioning capital markets.