Sovereign Financial deadbeats

Sovereign Financial deadbeats

By E. Stanley Ukeni

There is a dangerous trend emerging from highly indebted nations—spurred on by the likes of Argentina, and perhaps Greece. These countries are evolving a creative strategy to avoid fully honoring their international debt obligations.

While some countries, like Greece, are pushing for debt abrogation or renegotiation as a means of circumventing their debt obligations to their investors. Other countries like Argentina are evolving alternative designs. They are in essence—through the United Nations, attempting to effect the establishment of ‘a multilateral legal framework’, for the purpose of adjudicating sovereign debt restructuring.  Perhaps, they are hoping that such an institutionally funded multilateral framework would be more sympathetic to debt defaulting countries when dealing with debt-holders than a court of law where free market norms would likely apply.

These countries willfully issue sovereign debts at often unrealistic interest rates—declaring a good faith intention to fully repay the debts. Then, through their governments’ reckless and inept economic policies and practices they ferret away the funds generated from the bond issuance, thereby destabilizing their nations’ economies.

Upon defaulting on their debts, these same governments—blaming other countries and institutions for the harsh consequences for their fiscal malfeasance, quickly turn around and baulk at repaying the full value of the debts owed to their bondholders, who generously funded their fiscal excesses at the tune of billions of dollars.

If the efforts of counties like Argentina to rally U.N. member nations towards the establishment of a, treaty backed, multilateral debt restructuring framework were to gain traction, poorer countries than Argentina would bear the brunt of its unintended consequences. Many African countries, for instance, may find it very difficult to access international capital markets at reasonable interest rates, as higher risk premium would be priced into the loans by lenders.

Authored by E. Stanley Ukeni, ©2015. All Rights Reserved.