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When Bad Things Happen to Good Sovereign Debt Contracts: The Case of Ecuador

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  • Porzecanski, Arturo C.

Abstract

The lesson from abundant history is that, despite decades of constructive innovations in international loan and bond contracts involving sovereign financial obligations, lawyers, bankers, analysts and investors are best advised to operate under no illusions: Sovereigns are indeed sovereign. To those who harbored the hope that Argentina’s bad behavior as a sovereign debtor was a major exception that would not soon be repeated, the case of Ecuador’s latest default on shaky claims of the “illegitimacy” of some of its obligations demonstrates that while the absence of sovereign willingness to pay remains rare, it is not rare enough. These rogue sovereign debtors can be effectively restrained only by the forceful actions of other sovereigns, bilaterally or multilaterally, but in this case, in a repetition of attitudes shown toward Argentina since 2002, the international official community not only failed to condemn Ecuador’s actions, but actually expressed verbal and provided financial support. The government in Quito gathered no plaudits from the many national and international NGOs that have been campaigning for the massive forgiveness of developing-country debt, but at least this attitude is understandable: the case of Ecuador did not lend itself to arguments in favor of repudiation on “odious debt” or any related grounds. Above all, the country provides a useful, cautionary tale of the bad things that can happen to good sovereign debt contracts.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20857.

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Date of creation: Feb 2010
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Handle: RePEc:pra:mprapa:20857

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Keywords: International finance; sovereign debt; default; Latin America; Argentina; Ecuador;

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References

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  1. Arturo C. Porzecanski, 2005. "From Rogue Creditors to Rogue Debtors: Implications of Argentina's Default," International Finance 0510010, EconWPA.
  2. Arturo C. Porzecanski, 2007. "Debt Relief by Private and Official Creditors: The Record Speaks," International Finance, Wiley Blackwell, vol. 10(2), pages 191-214, 07.
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Cited by:
  1. Rohan Pitchford & Mark L. J. Wright, 2010. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," NBER Working Papers 16632, National Bureau of Economic Research, Inc.
  2. Porzecanski, Arturo C., 2012. "Buenos Aires to Athens: The Road to Perdition," MPRA Paper 37874, University Library of Munich, Germany.
  3. Porzecanski, Arturo C., 2012. "Behind the Greek default and restructuring of 2012," MPRA Paper 42432, University Library of Munich, Germany.
  4. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950 - 2010: Literature Survey, Data, and Stylized Facts," IMF Working Papers 12/203, International Monetary Fund.

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