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date: 18 May 2021

Abstract and Keywords

This chapter examines the direct and indirect means through which foreign lenders have influenced borrowing states’ autonomy, beyond the conventional focus on multilateral loan conditionality. We focus on four historical periods, beginning with nineteenth-century relational banking, when underwriting banks exercised considerable power in the form of private information on borrowers’ creditworthiness and bondholder committees allowed creditors to collectively restructure debt. We look next at the era of early twentieth-century dollar diplomacy, when the United States leveraged private credit to Latin American states as a tool of expanding its regional influence. The next major changes occurred in the interwar era, when regulatory changes chipped away at prestige banks’ monopoly on credit markets and empowered private credit rating agencies. Finally, we examine contemporary sovereign lending, focusing on contractual clauses that have constrained borrowers’ autonomy and on how derivative contracts written on sovereign debt indirectly affect state issuers of debt.

Keywords: sovereign debt, relational banking, dollar diplomacy, conditionality, contracts, credit rating

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