Chapter 4: Sovereign Debt and the Poverty of Nations
4. Sovereign debt and the poverty of nations Debt does not necessarily lead to poverty. A country that earns more than it borrows and that is able to repay its loans will not be impoverished through debt. Many countries have borrowed and not ended up destitute. There are, however, certain characteristics of sovereign debt that can make it more susceptible to causing a nation to fall into poverty. This chapter considers these factors, and in the latter part discusses the current international response to sovereign debt and the poverty of nations. UNIQUE FEATURES OF SOVEREIGN DEBT Sovereign debt is different from other kinds of debt. There are some similarities between corporate and sovereign debt – for instance, like a country (or a government) a corporation has a management team, which incurs debt on behalf of its shareholders (read citizens). In both the corporate and the sovereign case, the shareholders and the citizens are in an inferior position, vis-à-vis the governing team. Both shareholders and citizens risk suffering consequences for opportunistic or badly made debt decisions by management or government, respectively. Given this imbalance of power, in the corporate context there is a myriad of rules which seek to protect shareholders from corrupt, or merely incompetent managers.1 These rules prescribe a variety of restrictions on managers, and impose liability where managers do not act in good faith, or in the best interests of their shareholders. However, in the sovereign context, no such framework of rules exists to protect citizens. As discussed...
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