Voice at the Point of Sovereign Default

Much has been written about the questionable legitimacy of extending credit to states where it is likely that the funds will benefit the corrupt leader, or where the terms of the debt are highly inequitable. Less literature focuses on a different moment in the debt cycle: the point of default and the loss of voice suffered by Global South parties as they negotiate solutions.

Private investors exercise disproportionate influence at the time of default over the evolution of rules as they are adapted in response to new crises. Given that multiple possible technical solutions have been advanced over time, it is important to consider who preferences the chosen solutions and newly-formed rules represent, and why.

A new journal article by Leslie Elliott Armijo and Prateek Sood in Ethics & International Affairs focuses on voice at the point of a sovereign debt crisis, proposing an ethical framework that acknowledges the inevitability of shared risks between debtors and creditors in any long-term financial contract.

The article dissects three famous cases: the Latin American Debt Crisis of the 1980s, the Asian Financial Crisis of 1997-1999 and Argentina’s battle with vulture funds from 2005-2016. They outline the ways that private financial businesses or their advocates exercise disproportionate voice, influencing decision-makers to implement their preferred outcomes, while ignoring the claims of sovereign debtors advocating more balanced solutions. The authors argue international institutions should develop a more consistent and inclusive troubled sovereign debt framework, based on the norm of shared responsibility, which explicitly aims to equalize voice across different stakeholders.