Thread by @Kentikelenis

Fascinating new article on debt crises by @JeromeRoos: “Can’t Pay, Will Pay: Historical Change in the Management of International Debt Crises”

A short thread.

jeromeroos.com/cms/wp-content…

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Pre-1980s, when countries were faced with external economic shocks, they commonly chose to pursue “a unilateral suspension of payments followed by a lengthy moratorium and an eventual settlement on debtor-friendly terms.”

Sounds alien, right?

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That is because from the 1980s onwards the US and the IMF started implementing large-scale financial interventions in countries going through debt crises.

These interventions were underpinned by the principle that repayment was sacrosanct.

Why?

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Financial innovation and collapse of Bretton Woods regime led to huge increase in capital flows into developing countries, and left US banks overexposed.

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This politicised debt crises in a totally new way, and — by extension — also politicised the international responses to them. IMF conditionality is political!

Sarah Babb and I have written on that issue elsewhere:

https://twitter.com/Kentikelenis/status/1136588407621193730?s=20

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What distributional implications did all this have?

First, it led to a flow of capital from heavily indebted countries in the periphery to private creditors in the advanced economies of the core.

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Second, it led to worsening income inequalities within debtor countries, as debt service drew resources away from public services.

Just look at Greece’s recent experience.
Or cross-national quantitative evidence by Forster et al here:
sciencedirect.com/science/articl…

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In short, nothing natural about the “can’t repay, will repay” way of handling international debt crises.

It exists because of financialized globalization and its underlying power politics.

Read the paper! An instant classic.
jeromeroos.com/cms/wp-content…

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