restricted access Chapter Three: Filling a Hole in Global Financial Governance? The Politics of Regulating Sovereign Debt Restructuring
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C H A P T E R T H R E E Filling a Hole in Global Financial Governance? The Politics of Regulating Sovereign Debt Restructuring Eric Helleiner MOST COUNTRIES with market-based economies have developed formal regulatory mechanisms, in the form of bankruptcy laws, to facilitate the orderly restructuring of unsustainable debts owed to private creditors within their territories. It is widely recognized that these mechanisms serve important public good functions at the national level. By imposing a standstill on payments, they can prevent creditors from engaging in a destructive “rush to the exit” when debtors are suffering financial difficulties . Equally important, they outline clear procedures for fostering the speedy and orderly restructuring of debts when necessary that can benefit debtors and creditors alike. Why, then, has there been no formal counterpart mechanism at the global level to help restructure sovereign debts owed to private foreign creditors? The question was raised prominently in November 2001 by the IMF’s deputy managing director, Anne Krueger, who described this situation as a “gaping hole” in the governance of international finance.1 Her speech garnered enormous attention and helped generate an intense debate over the question of how best to facilitate a more orderly restrucSome portions of this chapter have been previously published in my article, “The Mystery of the Missing Sovereign Debt Restructuring Mechanism,” Contributions to Political Economy 27, no. 1 (2008) (Oxford University Press). I am grateful for research help to Asim Ali, Geoff Cameron, Masaya Llavaneras-Blanco, Troy Lundblad, Bessma Momani, Ian Muller, and Antulio Rosales. For their helpful comments , I thank two anonymous reviewers, and also Amar Bhattacharya, Tom Biersteker, Ariel Buria, Tom Callaghy, Randy Germain, Dierdre Kamlani, Bessma Momani, Layna Mosely, Tony Porter, Matthew Tubin, the participants in the Global Economic Governance seminar at the University of Oxford, and the contributors to this book, particularly Walter Mattli and Ngaire Woods. I also thank the Social Sciences and Humanities Research Council of Canada for assisting this research. 1 Anne Krueger, International Financial Architecture for 2002: A New Approach to Sovereign Debt Restructuring, address given at the National Economists’ Club Annual Members ’ Dinner, American Enterprise Institute, Washington, DC, November 26, 2001. Available at 90 • Eric Helleiner turing of unsustainable sovereign debts. To date, this debate has generated two international regulatory initiatives. In a very short time, almost all new international bond issues have come to include a new set of standard legal clauses—“collective-action clauses” (CACs)—designed to facilitate a more orderly restructuring of unsustainable sovereign bond debt owed to foreign private creditors. At the same time, a new international code of conduct to govern sovereign bond restructuring episodes has been endorsed by the leading representatives of the international private financial community and public authorities in both “emerging market” and “creditor ” countries.2 These initiatives represent a more limited international response than many, including Krueger herself, had hoped for. But they are still significant in having brought the restructuring of sovereign debts owed to private foreign creditors under new forms of regulation. Scholars of international political economy have not yet devoted much attention to these developments. This is unfortunate not just because of their potential practical significance whenever the next sovereign debt crises break out. These developments also have broader significance for scholarly debates about the politics of global economic regulation. How was it possible to foster such a rapid convergence of legal provisions in this sphere of the world economy? Why have leading actors been willing to cooperate in the development of an international code of conduct? And more generally, what does this episode teach us about the politics of global regulatory change? This chapter addresses these questions, drawing on the analytical framework developed by Mattli and Woods for this volume.3 The first section of the chapter explores the politics of international agenda-setting vis-à-vis this issue. It highlights how the creation of a formal international debt restructuring mechanism historically lacked a political champion because private creditors usually succeeded in serving their interests without such a mechanism, while sovereign debtors (especially wealthier ones) worried that their advocacy of the cause might undermine their creditworthiness . In this context, it took a third party—governments in creditor countries—finally to place the issue squarely on the international political agenda in the current age. Creditor governments were provoked by a set of international financial crises from the mid-1990s onward which demonstrated...