On April 17 and 18, the Princeton Sovereign Finance Lab held a conference on “The Politics of Sovereign Finance,” at SPIA’s space in Washington, DC. The event was timed to coincide with the spring meetings of the International Monetary Fund and World Bank. Approximately 85 people participated in the conference. The attendees included academic researchers from the fields of political science, law and economics; government officials from countries including Brazil, Ethiopia, Germany, Nigeria, the UK and the US; researchers from the IMF and the World Bank; and private sector investors. Several Princeton University post-doctoral fellows, Ph.D. students and MPA students also participated.

Layna Mosley kicked off the event with an overview of Princton Sovereign Finance Lab’s research, focusing on the entire life cycle of government debt. This entails investigating how governments make choices among potential creditors; how investors assess and price political risk, including that related to elections and government ideology; under what conditions governments decide not to service or repay their debts; and when creditors are willing to agree to debt restructuring. Mosley suggested that politics, international as well as domestic, are central to understanding these issues.

The first conference panel, moderated by Jonathan Goulden (J.P. Morgan), addressed the domestic and international politics surrounding access to credit. Cameron Ballard-Rosa (UNC Chapel Hill) presented research exploring the link between democracy and the ability to issue bonds on international markets. He also discussed ongoing work linking credit ratings changes with shifts in public opinion in Global South countries. Lauren Ferry (Mississippi) discussed the effects of countries’ ties to the United States on the likelihood of sovereign debt restructuring, as well as on post-default borrowing costs. Peter Rosendorff (NYU) concluded the panel with a discussion of how China’s presence as a bilateral creditor reduces the propensity for Paris Club debt restructuring, especially for countries that are politically distant from the United States.

The second session explored various possibilities for reforming the international (and domestic) architecture of sovereign debt. Penelope Hawkins (UNCTAD) chaired the session and offered comments on the various proposals advanced. Anna Gelpern (Georgetown Law) kicked off with a focus on how the US constitution treats public debt. Martin Kessler (Finance for Development Lab) proposed a new mechanism for dealing with liquidity crises in low and middle-income countries. David Mihalyi (World Bank) presented a paper assessing the financial benefits of a recent set of debt for development swaps. And Theo Maret (Global Sovereign Advisory) offered a summary of recent thinking on the comparability of treatment of creditors. This panel offered lots of material for discussion, some of which happened at a reception on the rooftop space, and more of which continued over dinner.

Thursday’s first session explored the role of China in sovereign finance. Brad Parks (AidData/William & Mary) presented detailed evidence on Chinese overseas lending, pointing out that much of the Chinese financing boom happened prior to the 2013 announcement of the Belt and Road Initiative. Deborah Brautigam described the approach of the Chinese government and of Chinese financial institutions to debt restructuring and relief. Alexandra Zeitz further explored how China’s presence as a creditor, as well as the more general diversity of creditors, affected the development of the G-20’s Common Framework for Debt Treatments. Andrea Presbitero (IMF) offered an analysis of how China’s emergence as a lender intersected with earlier debt relief for highly indebted Global South countries. Yannis Manuelides, a former partner at Allen & Overy LLP, kicked off a broader discussion of China’s role. 

We also heard presentations from Diego Rivetti (World Bank) on how to better incentivize transparency around debt, from creditors as well as borrowing countries; and from Eric LeCompte (Jubilee USA Network) about his organization’s current effort to change New York state law related to sovereign borrowing. The audience engaged in a spirited discussion of the pros and cons of the bill currently before the New York state legislature. 

Another Thursday session explored sovereign debt restructuring from the perspective of economics, law and political science. Sarah Brooks (Ohio State) chaired this session. Mark Wright (Federal Reserve Bank of St. Louis) offered an analysis of the de facto seniority structure of sovereign debt – that is, which creditors get paid first? Tamon Asonuma (IMF) offered an overview of a new dataset on sovereign debt restructurings and discussed his research on the economic costs of these restructurings. Monica Widmann (Princeton University) shifted the focus to politics, looking at how sovereign bond markets respond to decisions of U.S. judges related to sovereign debt claims. Mark Weidemaier (UNC Chapel Hill) explored the judgment-holder problem in sovereign debt workouts.

Our final substantive session turned to the question of the broader causes and consequences of debt. Reza Baqir, former governor of the State Bank of Pakistan and now a sovereign adviser at Alvarez & Marsal, chaired the panel. Jonas Bunte (University of Vienna) summarized his research on how U.S. export credit providers consider the environmental records of recipient firms. Mark Manger (University of Toronto) discussed the choice between taxation and borrowing in Zambia. Anahí Wiedenbrüg (Suramericana Visión) presented her policy-focused analysis of the relationship between sovereign debt and politics.

This event offered a chance for conversations across disciplinary and sectoral boundaries, as well as the opportunity to better connect research with policy. Although the event’s timing meant that some participants were unable to attend every session – indeed, the planned fireside chat guest was delayed, as he found himself in finance ministers’ meeting that ran late – it also offered an opportunity to involve many individuals who were in Washington for the spring meetings. Participants appreciated the opportunity to discuss, in real time, potential changes to legislation, debt sustainability analyses and debt restructuring procedures. We very much hope to host a similar event in 2025.