Informal Global Financial Governance and Sovereign Debt

• In Event: Politics of Sovereign Debt and International Finance

Abstract

Much of the global governance of international finance relies on informal or soft law instruments to set rules and govern states’ behavior. How do these governance arrangements impact state behavior? This paper analyzes the impact of one such institution, the Common Framework for Debt Treatments, agreed under the auspices of the G20 in November 2020. The Common Framework defines procedures for the restructuring of countries’ bilateral debts, but is only accessible to 73 low-income countries. By comparing outcomes for borrowing countries on either side of the eligibility threshold, the paper investigates the impact of the Common Framework on the management of sovereign debt crises. Moreover, the paper develops an account of the mechanisms underpinning the impact of the Common Framework on restructuring negotiations, arguing that the soft law commitment alters the bureaucratic incentives for relevant agencies in countries that are party to the Common Framework, but only for eligible borrowers. This mechanism is traced with a paired comparison of Zambia and Sri Lanka, which are fairly similar in the composition of their sovereign debt, but differ in their eligibility for the Common Framework, with Zambia eligible and Sri Lanka not.

Author

• Alexandra Olivia Zeitz, Concordia University