On Friday, September 5, members of the Cornell community gathered in the MacDonald Moot Court Room to celebrate the publication of Professor Odette Lienau's book, Rethinking Sovereign Debt: Politics, Reputation, and Legitimacy in Modern Finance (Harvard University Press, 2014).
An examination of the norm of sovereign debt continuity, the book challenges the conventional wisdom that all states, including those emerging from a major regime change, must repay debt or suffer reputational consequences. Lienau contends that this practice is not essential for functioning capital markets, and she locates the twentieth century consolidation of the repayment rule in contingent actions taken by government officials, international financial institutions, and private market actors.
The book celebration, moderated by Professor Jens Ohlin, featured a panel of scholars who delved into some of the finer points of Lienau's arguments. Before they began, Lienau provided an overview of the book and its genesis. She identified three assumptions underlying the prevailing attitude toward sovereign debt continuity: 1) that the rule of debt continuity is apolitical, 2) that the rule is required by the reputational mechanism that underpins capital markets, and 3) that powerful creditors would not accept any other approach. "The smugness of this narrative annoyed me," Lienau said. Her goal, then, was to challenge that narrative through both theoretical and historical analysis.
Following Lienau's introduction, the audience heard from Jonathan Kirshner, Stephen & Barbara Friedman Professor of International Political Economy in the Department of Government at Cornell University. "I'm more of a constructive and respectful disagreement and criticism kind of a guy, and so opening with praise is a painful experience for me," Kirshner admitted. "But I must open with praise, because I was so impressed by the book, which offers a sweeping command of diverse, thoughtfully and appropriately selected cases while ranging freely across disciplinary boundaries-and as such is a model of excellent and provocative scholarship. I would urge in particular younger scholars to look to it as what one might aspire to."
Though he went on to praise the book's contribution to the understanding of reputation in international relations, its exploration of heterogeneity in creditor interests and behavior, and its emphasis on exposing the myth of the apolitical economic policy, Kirshner did have the opportunity to end with some "respectful disagreement," challenging what he saw as Lienau's overly optimistic take on the prospects for a shift in the debt continuity norm.
Robert Howse, Lloyd C. Nelson Professor of International Law at NYU Law School, spoke next, lauding Lienau's book as reading "like a ripping tale [that] combines very deftly conceptual and theoretical analysis . . . with a brilliant and compelling historical narrative and a very shrewd policy analysis."
Howse went on to examine the interplay between Lienau's arguments and a case study currently in the headlines: Argentina's default on its national debt after a number of "vulture fund" creditors declined to buy into a debt restructuring option offered by the country's government. Howse noted that the willingness of the vast majority of Argentina's creditors to accept the restructured debt, and the continued willingness of creditors to lend to Argentina even after the "nuclear event" of default, supported Leinau's argument against the assumption that the market will invariably enforce the rule of repayment.
The final panelist of the event was Adam Feibelman, associate dean for faculty research and Sumter Davis Marks Professor of Law at Tulane Law School. Addressing Lienau's work from the angle of commercial law, Feibelman said, "I think she's opened up a whole new and much larger area for legal scholarship on sovereign debt. And furthermore, this intellectual space is much more interesting and ambitious and challenging than most of what's been written on the topic." Noting that legal scholarship on sovereign debt is a very young field, thus far more active mostly during flurries of activity connected to particular events in international finance, he expressed excitement at the book's deeper, more fundamental exploration of the field's underlying concepts.
Speaking to the book's implications, Feibelman concluded, "[It] makes a very compelling argument, in my own view correct, that historical . . . counterexamples to the norm of debt continuity and state succession, and the recent ascendancy of competing underlying theories of sovereignty, should, at the very least, diminish our confidence in the inevitability of the norm of state continuity and debt repayment."
"I really appreciated the speakers' comments, and also the participation of faculty colleagues and students," says Lienau. "It was a great discussion, and incredibly helpful for me to hear initial responses to the book and think through possible avenues for future research."