This study explores the fragmented contemporary international legal instruments and practice relevant to sovereign defaults and has examined the question of whether and to what extent these instruments and practice can be reconceptualised as a regulatory framework for sovereign debt restructuring.

This study has pursued a balance between bondholder protection and respect for sovereign debt restructuring at various stages of litigation and arbitration proceedings. An appropriate balance inevitably depends on the context and circumstances of specific cases and cannot, by its nature, be articulated in a precise manner. Instead, the present study has pursued a framework within which an appropriate balance may be explored and attained in specific cases. Such a framework is constructed by applicable contract, statutory and treaty provisions to be interpreted in a manner that certain deference is paid to debtor sovereigns’ policy decision-making during debt restructuring and that the chance of checks and balances by courts or tribunals is ensured.

The pari passu clause in modern sovereign debt instruments may be interpreted and implemented in a manner that it constitutes part of the regulatory framework of sovereign debt restructuring. A careful reading of the NML saga revealed that US courts did not necessarily endorse the so-called ratable payment interpretation in rejecting the legal ranking interpretation; the US courts introduced ratable payment as a matter of injunctive relief for the violation of the pari passu clauses by Argentina and did not provide it as a proper interpretation of the clauses. Alternatively, this study has endorsed a third interpretation of the pari passu clauses according to which these clauses provide additional but limited protection from unfair discrimination among bondholders by the debtor sovereign in the process of debt restructuring. This interpretation may represent an appropriate balance between bondholder protection and respect for debt restructuring. In addition, the ratable payment as injunctive relief can be conceived as a regulatory implementation of pari passu clauses addressing a particular serious category of the breach of sovereign bond contracts.

The relevance of broader public policy considerations in the sovereign debt discourse cannot be ignored given the rise of the perception of sovereign default as a global concern. Recent literature tries to introduce a public law or policy perspective into the sovereign debt discourse, such as the theory of international public authority, l’ordre public de la dette souveraine and an incremental approach. As a matter of judicial interpretation, however, public policy arguments as such cannot override the text of the contract or treaty provisions in force. A better approach will thus be to examine whether and to what extent the applicable contract, statutory and treaty provisions afford such public policy considerations through interpretation in such a manner that practical solutions to holdout problems are deduced without losing the balance between bondholder protection and respect for sovereign debt restructuring.

In this chapter, I highlight the historical prevalence of sovereign default as a potentially devastating form of economic crisis.I also identify that, despite the decision to default being held by politicians or politically-appointed actors, our understanding of the political dynamics surrounding default is limited.I conclude by summarizing my regime-contingent argument on the political economy of default.

This chapter develops my theory of regime-contingent sovereign default by focusing on two strategies of mass politics:voting and revolt.I argue that partitioning citizens into urban versus rural agents aligns closely with traditional accounts of groups with advantages in these two strategies:specifically, urban citizens are generally considered to enjoy advantages for protest activity, whereas rural citizens have frequently been identified as crucial swing voters.After noting that these groups differ in their preferences for food price policy, I link the pressure from urban revolt to sovereign default in autocracies, particularly those that import a great deal of food.Conversely, rural electoral pressure often leads to large farm price supports which can be difficult to remove during fiscal crisis, suggesting that more rural democracies (especially those that export a great deal of costly food) should be more likely to default.The chapter concludes by also considering variation within regimes:electoral autocracies are argued to dilute the sole focus of autocrats on urban areas, whereas contentious democracies should lead to reduced emphasis on rural voters.

This chapter provides support for my main hypotheses that more urban and food-importing autocracies should be more likely to default, whereas more rural and food-exporting democracies should be more likely to renege on their international financial obligations.Drawing on approximately 50 years of cross-national data, I demonstrate robust evidence in favor of my main theoretical expectations, which remain even after introducing an extensive battery of controls for additional country- and systemic-level alternative explanations.In addition, I show that, for the subset of countries with relevant data on subsidy costs, it is precisely the most rural-biased democracies, and most urban-biased autocracies, that are most likely to default on their debt.

I begin this chapter with a case study of Costa Rica, a country almost universally admired for its peaceful and democratic political system.In such a consolidated democracy, I demonstrate that political attention to rural voters played a crucial role in the electoral success of the dominant PLN party; however, when faced with fiscal crisis in the 1980s, inability to reform agricultural pricing policies (as well as wage policies for electorally-crucial public sector unions) ultimately drove Costa Rica into default.The chapter concludes with discussion of contentious democratic politics in Jamaica, where political violence often organized by parties in urban centers unfortunately often plays a role.In such a system, the importance of limiting urban unrest through cheap food policies became a clear target under both PNP and JLP rule.Under severe fiscal crisis in the 1980s, Jamaican rulers proved unwilling to reform pricing policies beneficial to urban interests out of fear of societal unrest that would result, driving Jamaica to default not only to its external creditors, but also on its loans from the IMF itself.