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Pierre Pénet and Juan Flores Zendejas (eds), Sovereign Debt Diplomacies: Rethinking Sovereign Debt from Colonial Empires to Hegemony

Barry Eichengreen
p. 721-723
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Pierre Pénet and Juan Flores Zendejas (eds.), Sovereign Debt Diplomacies: Rethinking Sovereign Debt from Colonial Empires to Hegemony, Oxford: Oxford University Press, 2021, 384 pages, 978-019886635-0

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1This ambitious volume, edited by Pierre Pénet of Ecole Normale Supérieure Paris-Saclay and Juan Flores Zendejas of the University of Geneva, is noteworthy for several reasons. First, while there has been a flurry of research in recent years on the history of sovereign debt by economists, historians, political scientists and sociologists, much of this work adopts the perspective of financial markets, since source material is typically drawn from the financial press, investment bank circulars, reports by creditors’ representative organizations, and analyses by international bodies such as the World Bank and International Monetary Fund. This perspective lends itself (as it were) to a focus on interest rate spreads, realized rates of return and related statistics. This book, in contrast, brings the political dimension of sovereign debt to the fore. The editors emphasize power asymmetries between lending and borrowing nations—and between metropolitan financial centers and current and former colonies in particular. They highlight the role of diplomats in helping to arrange loans and of governments (and their gunboats) in enforcing them. They show how capital tended to flow, for these reasons, from current or former metropolitan centers to economies with which those centers had colonial or neo-colonial relationships. This framework illuminates much. For example, there is a dispute in the literature on the late-19th century on whether financial market access and borrowing terms hinged more importantly on adherence to the gold standard or on an economy’s imperial and colonial status. The present authors opt firmly for the latter.

2Second, the volume probes deeply into legal aspects of sovereign debt contracting and their history, while situating legal arrangements in their social and political context. Though sovereign immunity is not absolute, sovereign debt is distinctive in that debt contracts have limited legal enforceability. Creditors, receiving limited support from the courts, enforce their claims in a variety of ways, from pressing their government to dispatch the military; to applying pressure through international organizations like the IMF, in which they are major shareholders; to including pari pasu, or equal treatment clauses, in bond covenants. Nor do sovereign borrowers have a bankruptcy procedure or court to which to resort when things go wrong. In periods of distress, sovereign borrowers are therefore forced invoke technical legal provisions, such as collective representation clauses and exit consents, to facilitate renegotiation. Recent experience with sovereign debt restructurings is a reminder that these technical provisions and pressure from creditor country governments both bear importantly on how debt problems play out. While the details vary—military and diplomatic pressure has arguably become less overt over time, while technical legal provisions have gained even greater importance—the authors here document that both mechanisms always have been and remain present.

3Third, the book immediately becomes a go-to source for innovative scholarship by the most recent generation of sovereign debt scholars. Classic contributions to this literature by Leland Jenks, Herbert Feis and others date to the 1920s and 1930s, an especially troubled period for international finance. There was then renewed interest in historical experience with sovereign borrowing in the 1980s, prompted by the Latin American debt crisis. Scholars turned back to this history a third time in the early 2000s, stimulated in part by—and reacting to—Carmen Reinhart and Kenneth Rogoff’s controversial This Time is Different (2009). Many of the authors here postdate this third wave of scholarship. They show that research on the history of sovereign lending and borrowing is alive and well. Their contributions illustrate that scholarship is continuing to evolve.

4The contributions are organized chronologically. Section 1 focuses on sovereign debt crises in the “long 19th century” from the 1820s through the 1930s, with chapters on Latin American borrowing, foreign government intervention in Egypt and Tunisia (two of the first cases of “foreign financial control”), and borrowing by British colonies. Section 2 contrasts that earlier period, when political pressure and foreign control were used to extract debt repayment, with the 1940s through the 1970s, when repayment was subordinated to other objectives. The three chapters in this section consider Mexico’s 1942 foreign debt settlement, negotiated by the United States during World War II to help keep the country “on side”; the 1953 German debt settlement, concluded in the throes of the Cold War; and other post-World War II instances where governments, through their Export-Import Banks, provided indebted sovereigns with credit despite their reluctance to settle with the bondholders. The contrast between periods underscores the editors’ point that the geopolitical context is paramount.

5Section 3 covers the 1960s through 1980s, when formal colonial relationships dissolved, sovereign lending resumed, and sovereign debt crises erupted in Latin America and Eastern Europe. The three chapters in this section are rather specialized. Two look at questions around debt and state succession—whether newly independent nations are responsible for the debts of their colonial predecessors—while a third reviews attitudes toward sovereign debt developed through the United Nations Conference on Trade and Development (UNCTAD). These chapters might have been supplemented by others focusing on the principal sovereign debt developments of the period: the rise of syndicated bank lending, for instance, the Latin American and Eastern European debt crisis, and the creditor-country response, in the form of the Baker and Brady Plans. Section 4, finally, considers contemporary legal issues around debt contracts, with studies of the problematic cases of Argentina, Puerto Rico and Venezuela.

6Sovereign Debt Diplomacies betrays some of the weaknesses of a collection or conference volume. The style of chapters is uneven. There are some gaps in coverage. But there is also much that is new and novel. The book very much repays reading.

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Barry Eichengreen, « Pierre Pénet and Juan Flores Zendejas (eds), Sovereign Debt Diplomacies: Rethinking Sovereign Debt from Colonial Empires to Hegemony »Œconomia, 11-4 | 2021, 721-723.

Référence électronique

Barry Eichengreen, « Pierre Pénet and Juan Flores Zendejas (eds), Sovereign Debt Diplomacies: Rethinking Sovereign Debt from Colonial Empires to Hegemony »Œconomia [En ligne], 11-4 | 2021, mis en ligne le 01 décembre 2021, consulté le 23 mai 2022. URL : http://journals.openedition.org/oeconomia/11804 ; DOI : https://doi.org/10.4000/oeconomia.11804

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Barry Eichengreen

University of California, Berkeley. eichengr@econ.berkeley.edu

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Les contenus d’Œconomia sont mis à disposition selon les termes de la Licence Creative Commons Attribution - Pas d'Utilisation Commerciale - Pas de Modification 4.0 International.

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