The Political Economy of Debt Repudiation and Expropriation in LDCs

The LDC debt crisis of the 1980s has mainly been analyzed in terms of the debt-servicing capacity of the major debtor countries, while sovereign risk considerations played only a relatively minor role. In this analysis an attempt is made to address the debt crisis primarily from the sovereign-risk perspective. A dramatical increase of solvency problems from the early 1980s onwards is diagnosed and explained as a counter-intentional consequence of the implementation of cross-default clauses in LDC banking which reduced sovereign risks and made them more manageable. In what follows the basic concept of sovereign risk is described before the main thrust of the analysis is outlined at some length.