Courts, Sovereign Immunity, and Credible Commitment in Sovereign Debt Markets

The Oxford Handbook of Institutions of International Economic Governance and Market Regulation ◽

10.1093/oxfordhb/9780190900571.013.36 ◽

2019 ◽

Author(s):

W. Mark C. Weidemaier

Keyword(s):

Sovereign Debt ◽

Credible Commitment ◽

Debt Contracts ◽

Sovereign Immunity ◽

Conventional View ◽

Legal Enforcement ◽

Legal Remedies ◽

Debt Markets ◽

Mandatory Rules

This chapter revisits the role of legal enforcement in sovereign debt markets. The conventional view is that the law of sovereign immunity denies creditors effective legal remedies. To many observers, weak legal enforcement is problematic, for effective legal remedies would facilitate credible repayment commitments. Though substantially correct, this perspective is also flawed. The assumption that creditors lack effective remedies implicitly treats sovereign immunity as a set of mandatory rules. In fact, sovereign lenders can and do bargain for greater enforcement rights. When courts enforce these bargains, legal remedies gain potency. Yet potent remedies need not improve the functioning of debt markets. Courts can create effective remedies against sovereign debtors only by imposing significant costs on third parties. Many loan debt contracts are drafted so as to maximize these externalities. The important question—given short shrift thus far—is whether the credibility-enhancing virtues of legal enforcement justify the costs.

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Politics, Direct Investment, Public Debt Markets, and the Shadow Economy

The Oxford Handbook of Public Choice, Volume 2 ◽

10.1093/oxfordhb/9780190469771.013.34 ◽

2019 ◽

pp. 683-696

Author(s):

Friedrich Schneider

Keyword(s):

Informal Sector ◽

Political Institutions ◽

Public Debt ◽

Sovereign Debt ◽

Direct Investment ◽

Shadow Economy ◽

Debt Crisis ◽

Policy Implications ◽

Debt Markets

The chapter first considers the role of politics on the size of the shadow economy and how it is affected by political institutions. Second, it investigates the role of the informal sector on direct investment and public debt markets in the “official” economy. The informal sector has significant adverse effects on credit ratings, lending costs, and investment decisions. This has policy implications, especially in the context of the ongoing sovereign debt crisis, since it suggests that, if politics succeed in reducing the informal sector of financially challenged countries, this is likely to reduce credit risk concerns, cutting down lending costs, and stimulating investment.

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The New Guano: Legal Enforcement in Modern Sovereign Debt Markets

SSRN Electronic Journal ◽

10.2139/ssrn.3245254 ◽

2018 ◽

Author(s):

Mark C. Weidemaier

Keyword(s):

Sovereign Debt ◽

Legal Enforcement ◽

Debt Markets

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If Boilerplate Could Talk: The Work of Standard Terms in Sovereign Bond Contracts

Law & Social Inquiry ◽

10.1017/lsi.2018.14 ◽

2019 ◽

Vol 44 (03) ◽

pp. 617-646 ◽

Cited By ~ 1

Author(s):

Anna Gelpern ◽

Mitu Gulati ◽

Jeromin Zettelmeyer

Keyword(s):

Private Information ◽

Sovereign Debt ◽

Standard Form ◽

Sovereign Bond ◽

Standard Contract ◽

Debt Markets ◽

Financial Contract ◽

Standard Terms

Standard contract terms are “sticky”: they rarely change, even if change appears to be in the parties’ interest. Multiple theories to explain stickiness do not reach consensus on its causes. We investigate the role of stickiness in sovereign bond contracts, where it would be especially costly and therefore puzzling. In our interviews with more than a 100 officials responsible for the bond contracts of twenty-eight countries, they linked reluctance to change non-financial contract terms and the imperative of following a “market standard” for such terms. When a term could be described as standard for the government’s debt stock or borrower cohort, its content often came across as secondary. Sovereign debt managers seemed willing to forgo some of the benefits of contract terms for dealing with contingencies and revealing private information to avoid negative signals and maintain the liquidity of primary and secondary debt markets. Interviews with investors suggested a similar focus on standard form and a limited engagement with contract substance.

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The Diverging Theory and Practice of International Law

Oxford Research Encyclopedia of Politics ◽

10.1093/acrefore/9780190228637.013.585 ◽

2017 ◽

Author(s):

Leslie Johns

Keyword(s):

Human Rights ◽

International Law ◽

Foreign Investment ◽

Sovereign Debt ◽

Theory And Practice ◽

Sovereign Immunity ◽

Political Crises ◽

Domestic Courts ◽

State Actors

Existing theories of international law are largely state-centric. While international cooperation can benefit all, states are often tempted to violate their promises in order to manage economic and political crises. States must accordingly balance enforcement against flexibility: legal institutions must provide enough enforcement that states comply most of the time yet also provide enough flexibility that states can violate during crises. Such a balance is possible when laws are crafted and enforced by unitary actors that will tolerate occasional violations by others in order to preserve their own right to occasionally violate. However, the changing doctrine of sovereign immunity has dramatically transformed the actual practice of international law. Non-state actors and domestic courts play an increasingly important role in challenging state legal violations, generating a divergence between the theory and practice of contemporary international law. This divergence is apparent in many issue areas, including terrorism, human rights, sovereign debt, and foreign investment. This divergence suggests that political scientists and legal scholars must reconsider the limits of state-centric theories and examine the role of non-state actors and domestic courts.

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