Debt and Developing Economies: Are Repayment Options Fair?

Date01 March 2015
Published date01 March 2015
Farzana Chowdhury is a doctoral
student in the public affairs program in the
School of Public and Environmental Affairs
at Indiana University Bloomington.
Book Reviews 329
Public Administration Review,
Vol. 75, Iss. 2, pp. 329–331. © 2015 by
The American Society for Public Administration.
DOI: 10.1111/puar.12340.
more or less unavoidable for a working international
f‌i nancial system? Is it possible to think of an alterna-
tive approach—or f‌i nd one historically—in which
odious debt ideas and selective debt cancellation
might be incorporated into a functioning debt market
grounded in reputational assessments? And if so, why
hasn’t such a system developed, especially given the
politicized discussions of sovereign legitimacy that
have taken place alongside the development of mod-
ern f‌i nance?” (2).
A historical narrative starting from World War I
of‌f ered in chapter 2 is followed by illustrations of how
countries used various approaches to negotiate and
repay their debts in chapters 3 and 4. Chapters 5 and
6 then examine the history of debt structure since
World War II and the role of international organi-
zations such as the World Bank and International
Monetary Fund in debt repayment structure. Chapter
7 discusses how the f‌l ow of f‌i nancial capital has
changed in recent years, and the book concludes with
future directions in chapter 8.
Lienau argues that there is a lack of well-established
theory that can be applied to instances of sovereign
debt to better understand the framework of debt
structure. Agency theory has traditionally been
applied to domestic contracts, but, the author argues,
it is dif‌f‌i cult to apply it to international contracts
because of a lack of clear identif‌i cation of agents and
principals, legitimacy concerns, and information
asymmetries on both sides, creditors and debtors
(states/nations) (22–23). Future scholars will need to
establish theories that help better understand debt and
repayment structures as well as principal and agent
conf‌i gurations in international capital/debt networks.
Debt continuity is likely to be less of a priority for
many debtors, as Lienau points out. She suggests that
when creditors are consolidated and coordinated, debt
continuity is likely to be a priority for the debtor.
However, private and public creditors are accountable
to dif‌f erent stakeholders, so their objectives are likely
Odette Lienau, Rethinking Sovereign Debt: Politics,
Reputation, and Legitimacy in Modern Finance
(Cambridge, MA: Harvard University Press, 2014).
344 pp. $49.95 (cloth), ISBN: 9780674725065.
Debt crises over the years have caused lend-
ers to lose conf‌i dence in debtor countries.
e causes behind these crises have ranged
from mismanagement to corruption, excessive risk
exposure, and so on. Given the recent f‌i nancial crisis,
the debt problems of many developing countries
continue to plague the international community.
Traditional belief holds that a debtor country must
repay its debt, but many developing countries struggle
to service their debt and, at the same time, spend
enough to meet the needs of their citizens (GAO
2000).  erefore, how developing countries repay
their debts and the costs of repayment for these
countries are critical issues for international develop-
ment. Odette Lienau’s Rethinking Sovereign Debt:
Politics, Reputation, and Legitimacy in Modern Finance
provides a historical analysis of how debt continuity
has become the norm and presents cases that illustrate
changing norms for sovereign debt. Lienau examines
how various factors, such as a country’s institutions,
inf‌l uence the reputation of a country and how these
factors af‌f ect lending characteristics.
is book addresses important questions related
to the repayment of sovereign debt: How should
the debt incurred by a regime be repaid after that
regime changes? What should be the cost of the
sovereign debt? And should the debt incurred by an
authoritarian regime be repaid by a new regime?  e
author develops insights into these questions in eight
chapters. Lienau introduces in chapter 1 sovereign
debt continuity, that is, the rule that sovereign states
should repay debt even after a major regime change
and the related expectation that they will otherwise
suf‌f er reputational consequences. She then poses the
following as the guiding questions to be addressed
in the rest of the book: “How have we come to
think that the norm of sovereign debt continuity is
Debt and Developing Economies: Are Repayment
Options Fair?
Sonia M. Ospina and Rogan Kersh, Editors
Farzana Chowdhury
Indiana University, Bloomington

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