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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.

Suggested Citation

  • Porzecanski, Arturo C., 2010. "When Bad Things Happen to Good Sovereign Debt Contracts: The Case of Ecuador," MPRA Paper 20857, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20857
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    References listed on IDEAS

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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, July.
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    Cited by:

    1. Rohan Pitchford & Mark L. J. Wright, 2012. "Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 812-837.
    2. Horn, Fabian, 2015. "Quantifying the costs of sovereign defaults using odious debt cases as a quasi-natural experiment," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113125, Verein für Socialpolitik / German Economic Association.
    3. Herman Barry, 2016. "A Role for Legitimacy in Sovereign Debt: A Review Essay on Odette Lienau, Rethinking Sovereign Debt, 2014," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 6(3), pages 219-241, December.
    4. Arturo C. Porzecanski, 2016. "Sovereign Debt Restructuring After Argentina," Development, Palgrave Macmillan;Society for International Deveopment, vol. 59(1), pages 100-106, June.
    5. 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.
    6. Porzecanski, Arturo C., 2012. "Behind the Greek default and restructuring of 2012," MPRA Paper 42432, University Library of Munich, Germany.
    7. Porzecanski, Arturo C., 2012. "Buenos Aires to Athens: The Road to Perdition," MPRA Paper 37874, University Library of Munich, Germany.

    More about this item

    Keywords

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

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • F3 - International Economics - - International Finance
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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