Sovereign Defaults: Lessons from History and Future Implications
Instructors
Credits / Language / Semester
2Credits / English / Winter
Objectives/Overview
A sovereign default is the failure or refusal of a government to meet payments on its debt obligations to either domestic or external creditors, or to both. Since the global financial crisis of 2008-2009, high levels of government debt in advanced economies have raised renewed concerns over possible sovereign defaults. In fact, history gives us many precedents of sovereign default by both developed and developing countries as well as many crisis cases in their various guises that brought a government on the verge of default.
As financial journalist Philip Coggan described in his recent book titled Paper Promises: Money, Debt and the New World Order, economic history could be viewed as "a war between creditors and debtors" while borrowing and lending money is essential to make an economy function. As any other players in the economy, a government needs to borrow or assume some form of liabilities, both direct and contingent, when it runs deficits, rescues the financial system, guarantees public projects, tries to maintain exchange rates, and so on. Therefore, the government is not necessarily immune from a battle with its creditors. Furthermore, consideration is needed not only for the conflict between creditors and debtors, but also between creditors as evident from inter-creditor equity issues in debt restructuring exercise. Therefore, dealing with sovereign defaults has serious political and legal, as well as economic, consequences, which should require public policy and legitimacy considerations.
The aim of the course is to familiarize students with sovereign risk assessment methodologies (technique) on the basis of the historical knowledge of sovereign default and debt restructuring (lessons from history) and then to provide students with an opportunity to discuss and consider how government liabilities should be managed and sovereign debt crises should be avoided or dealt with (policy implications).
Keywords
banking crisis, currency crisis, debt restructuring, sovereign default, sovereign rating, sovereign risk assessment
Schedule
To be announced on the first day of the course
Teaching Methods
This course will be organized as a seminar with introductory lecture followed by class discussion. Active participation in discussion based on student different backgrounds, life-experiences, knowledge, skills, and reading of assigned materials is expected. The working language is English.
Guest speakers will be invited to discuss specific issues from various perspectives and/or based on different fields of professional expertise.
Students are required to make presentations at least twice on a subject to be assigned based on required readings, as well as voluntarily and additionally on a topic of their interest. Each student is also required to submit reports based on the presentation in the middle and at the end of the course.
Grading
The course grade will be based on:
Presentations 35% (10% for mid-term and 25% for final)
Individual reports 35% (10% for mid-term and 25% for final)
Class attendance and participation 30%
Reference Books
Required readings, mainly excerpts taken from the following reference books and other materials, will be either made available on the course website or handed out in class.
Coggan, Philip. 2011. Paper Promises: Money, Debt and the New World Order. New York: Penguin Groups.
Duncan, Richard. 2012. The New Depression: The Breakdown of the Paper Money Economy. Singapore: John Wiley&Sons.
International Monetary Fund (IMF). 2013. Sovereign Debt Restructuring--Recent Development and Implications for the Fund's Legal and Policy Framework. Washington, DC: International Monetary Fund.
Kindleberger, Charles P., and Robert Z. Aliber. 2005. Manias, Panics, and Crashes: A History of Financial Crises. 5th ed. Hobeken, NJ: John Wiley&Sons.
Kolb, Robert W., ed. 2011. Sovereign Debt: From Safety to Default. Hobeken, NJ: John Wiley&Sons.
Lewis, Michael. 2011. Boomerang: Travels in the New Third World. New York: W.W. Norton&Company.
Polackova Brixi, Hana, and Allen Schick, eds. 2002. Government at Risk: Contingent Liabilities and Fiscal Risk. Washington, DC: The World Bank.
Rajan, Raghuram G. 2010. Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton: Princeton University Press.
Reinhart, Carmen M., and Kenneth S. Rogoff. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.
Sturzenegger, Federico, and Jeromin Zettelmeyer. 2006. Debt Defaults and Lessons from a Decade of Crises. Cambridge, MA: The MIT Press.
Tomz, Michael. 2007. Reputation and International Cooperation: Sovereign Debt across Three Centuries. Princeton: Princeton University Press.
Waibel, Michael. 2011. Sovereign Defaults before International Courts and Tribunals. New York: Cambridge University Press.