A MODERN LEGAL HISTORY OF SOVEREIGN DEBT: LAWSUITS AND EMPIRE: ON THE ENFORCEMENT OF SOVEREIGN DEBT IN LATIN AMERICA Skip over navigation
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Copyright (c) 2010 Law and Contemporary Problems
Law and Contemporary Problems

A MODERN LEGAL HISTORY OF SOVEREIGN DEBT: LAWSUITS AND EMPIRE: ON THE ENFORCEMENT OF SOVEREIGN DEBT IN LATIN AMERICA

Fall, 2010

Law and Contemporary Problems

73 Law & Contemp. Prob. 39

Author

Faisal Z. Ahmed*, Laura Alfaro** and Noel Maurer***

Excerpt


I. Introduction
 
Three things are eternal: death, taxes, and sovereign default. The latter is surprising in light of the fact that creditors continue to provide hundreds of billions of dollars to governments, despite a long and dolorous history of default. 3 One might imagine that the threat of losing access to future credit might be enough to discourage sovereign default, but there are ample reasons to believe otherwise. Investors do not deny credit to governments with a history of default, and the interest-rate penalties that do arise are not very large. 4 "Markets have short memories" is practically a truism among investors. Insofar as countries do repay their debts, they appear to do so either because of their domestic political institutions or because defaults are often associated with painful macroeconomic crises.

Can sanctions play a role in improving sovereign debt markets? Sanctions, of course, play a key role in sustaining private-debt markets. The possibility of sanctions - asset seizures or income garnishments - makes private debtors less likely to default. Sovereign governments, on the other hand, are free from any sort of supranational authority that might enforce debt contracts.

Sanctions against sovereign debtor governments, however, were relatively commonplace before 1913. Between 1870 and 1913, defaulting governments ran a forty-percent chance of facing foreign intervention via blockades or, more commonly, via the imposition of foreign control over their domestic finances under the threat of blockade. 5 In this essay, we contrast the efficacy ...
 
 
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