How does politics affect private international lending? This article highlights the relationship between international banks, their home governments, the International Monetary Fund (IMF), and international regulators during the years that preceded the debt crisis of 1982. Based on new archival evidence from different case studies, we find that the decisions of commercial banks to lend were largely based on the home governments’ preferences, competition, and the assumption that home governments and international organizations would provide lender of last resort functions to support borrowing governments. While previous works suggest the 1982 debt crisis was unexpected, we show that banks primarily reacted to the deteriorating macroeconomic situation in many emerging economies once the support of their home governments and the IMF became uncertain.

Why are international financial institutions important? This paper reassesses the role of the loans issued with the support of the League of Nations. These long-term loans constituted the financial basis of the League’s strategy to restore the productive basis of countries in Central and Eastern Europe in the aftermath of the war. We argue that the League's loans accomplished the task for which they were conceived because they allowed countries in financial distress to access capital markets. The League adopted an innovative system of funds management and monitoring that ensured compliance of borrowing countries with its programs. We provide empirical evidence that financial markets viewed the League’s role as an external, multilateral agent positively, solving the credibility problem of borrowing countries allowing them to engage in economic and institutional reforms. This success was achieved despite the League’s own lack of lending resources. We also demonstrate that this multilateral solution performed better than the bilateral arrangements adopted by other governments in Eastern Europe because of its lower borrowing and transaction costs

This descriptive chapter identifies the available narratives on the evolution of sovereign debt across the four historical clusters we have chosen to examine and show how this volume updates and complements existing research. Consistent with the diplomatic framework outlined in the introduction, we survey patterns of similarities and differences between clusters in terms of risk analysis, legal clauses, bargaining power, and conceptions of state responsibility. Our periodization will not surprise the reader inasmuch it broadly conforms to the conventional reading that the Great Depression and the collapse of the Bretton Woods system in 1971 were two critical junctures that deeply altered the form of creditor–debtor interactions in the sovereign sector. Yet, as we show below, this volume also makes substantial amendments to this conventional story. First, our focus on colonial history from the nineteenth-century building of empires to postcolonial transitions allows to diversify and identify discrepancies in the available narratives on each periods. Second, our attention to colonialism leads us to pay sustained attention to debt disputes arising during the postcolonial transitions of the 1960s–70s, a cluster of defaults which has not received sufficient scholarly attention. As explained below, our proposal to jointly analyse the historical threads of sovereign debt and colonialism allows for revisiting certain well-known cases of debt disputes and to examine previously unknown or little known events. The last section of this chapter presents the general organization of the volume as well as the list of selected case studies.

Many of today's central banks in Latin America were established in the interwar period. During the 1920s, most of them were designed under the influence of money doctors. The main mandate of these new institutions was to cope with inflation and provide exchange stability. This article analyses how these central banks responded to the onset of the Great Depression. I show that, in accordance with the requirements of the monetary regime, central banks initially acted to prevent capital outflows and to protect their gold reserves. This led to a credit drop to the private sector. Additional credit was made available once governments decided to intervene more actively in the economy, thereby disregarding the advice of money doctors. The central banks that were founded in the 1930s, and the reforms introduced to those already operating, were conceived to face the effects of the crisis.

Contesting the preferred creditor status of the League of Nations, 1931-3 † By JUAN FLORES ZENDEJAS *This article analyses the defaults of the League loans, which were private loans promoted by the League of Nations to support governments in central and eastern Europe in the 1920s. Previous works have argued that governments refused to grant these loans preferred status. However, this article shows that at the onset of the crisis, investors and governments treated these loans differently. It provides an empirical analysis to test whether there was a common element in the pricing of these loans and whether they enjoyed seniority compared to other, non-League loans. The findings show that there was a common factor driving the bond prices of these loans at the onset of the 1931 banking crisis. This article demonstrates that while these loans were not legally senior, certain governments granted the League loans de facto preferred status under the assumption that averting default would foster renewed support from the League. Archival evidence is provided to show that governments ceased to grant the League loans exceptional treatment when the expected support from the League did not materialize, which further weakened the ability of the League to secure emergency lending.