Public borrowing in harsh times : the League of Nations Loans revisited
This paper reassesses the importance of the League of Nations loans of the 1920s. These long-term loans were an essential part of the League’s strategy to restore the productive basis of countries in Central and Eastern Europe. Whereas the literature is not conclusive as to the final result of this experience, we argue that the League Loans were successful because they accomplished the task for which they were conceived—namely, to allow countries in financial distress to access capital markets. This success rested on the sustained efforts of the League of Nations to gather support from creditor countries’ governments and financial intermediaries, as well as its efforts to develop plans for economic reform for borrowing countries. We provide quantitative and qualitative evidence to show that the League provided market access in a difficult and hostile environment, and did so by building its own reputation as an actor that provided a credible commitment to economic and institutional reforms. Through the success of the placement of the initial issues, the League became capable of influencing borrowing costs, even if they continued to be predominately determined by the secondary market and remained high as a result of the risk involved. Much of the confusion in the literature is explained by the fact that the League lacked its own capital, which impeded its ability to act as a lender of last resort once the great depression hit Europe.
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- Marc Flandreau & Norbert Gaillard & Ugo Panizza, 2009.
"Conflicts of Interest, Reputation and the Interwar Debt Crisis: Banksters or Bad Luck?,"
IHEID Working Papers
02-2010, Economics Section, The Graduate Institute of International Studies, revised Feb 2010.
- Flandreau, Marc & Gaillard, Norbert & Panizza, Ugo, 2010. "Conflicts of Interest, Reputation, and the Interwar Debt Crisis: Banksters or Bad Luck?," CEPR Discussion Papers 7705, C.E.P.R. Discussion Papers.
- Kim Oosterlinck & Loredana Ureche-Rangau, 2012.
"Interwar Romanian sovereign bonds: the impact of diplomacy, politics and the economy,"
ULB Institutional Repository
2013/142705, ULB -- Universite Libre de Bruxelles.
- Oosterlinck, Kim & Ureche-Rangau, Loredana, 2012. "Interwar Romanian sovereign bonds: the impact of diplomacy, politics and the economy," Financial History Review, Cambridge University Press, vol. 19(02), pages 219-244, August.
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- Kindleberger, Charles P., 1993. "A Financial History of Western Europe," OUP Catalogue, Oxford University Press, edition 2, number 9780195077384, December.
- Flandreau, Marc & Flores, Juan H., 2009. "Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830," The Journal of Economic History, Cambridge University Press, vol. 69(03), pages 646-684, September.
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