Russia, Sovereign Default, Reputation and Access to Capital Markets

Bibliographic Data

ID12299915
AuthorsYULIA SINYAGINA-WOODRUFF (corresponding author)
Year2003
Volume55
Issue4
Pages521-551
Publication date2003-06-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueEurope Asia Studies (JOURNAL)
Journal identifiersISSN: 0966-8136 • E-ISSN: 1465-3427
PublisherRoutledge (PUBLISHER • GB)
DOI10.1080/0966813032000083984
OpenAlexW2011126558
LanguageEN
Citations received4
References cited6

THE LACK OF INSTITUTIONAL METHODS for protecting lenders' rights in cases of sovereign default is widely discussed in the academic literature. As conventional wisdom (supported by countless economic models) dictates, in the absence of an authority capable of forcing a sovereign to honour its debt obligations, only fear of future punishment motivates countries to pay their creditors back. Such punishment, according to sovereign debt experts, can take the form either of sanctions against an unfaithful borrower or of cutting its ability to borrow more. Sanctions-based theories are less in favour nowadays. After all, '... the US Marines are no longer used for debt collection from foreign governments, as they sometimes were before the First World War'.1 Other customarily mentioned sanctions, such as trade or economic ones, are almost equally ineffective in encouraging debt repayment. Disruption of trade can be a serious punishment only to a 'small' trade partner, because a bigger one will retaliate. Seizure of external assets, even with the blessings of international arbitration, can be more problematic still. The ongoing saga of the firm Noga (discussed later) which has struggled for almost 10 years to enforce court decisions against the Russian government, illustrates that. The weakness of sanctioning theories leaves a prominent place in social science to reputation models of sovereign debt, which generally argue that bad credit records close a country's future access to capital markets, and that to retain this access sovereigns choose to maintain a good reputation for repayment. This sentiment seems to be to some extent shared by market participants, both creditors and debtors, and, as will be shown later, has on occasion directly influenced outcomes of rescheduling negotiations. However, the widespread belief that a sovereign debtor's good reputation is a prerequisite for future loans is quite surprising, given the empirical evidence. This article, based on a review of theoretical and empirical literature and a case study of Russia's relations with foreign creditors, argues that reputational theories of debt fail in explaining the complex motivations that govern cross-border sovereign lending and the government's treatment of external creditors. It attempts to

Business · Debt · Default · Economics · International economics · Political science · Reputation · Sanctions · Sovereignty · Global Financial Crisis and Policies · Law · Russia and Soviet political economy · State Capitalism and Financial Governance · Finance

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