The Failure of the Foreign Bondholders Protective Council Experiment, 1934–1940
This article explores the contentious U.S. State Department–Foreign Bondholders Protective Council relationship in the context of interwar foreign economic policy and bureaucratic competition. U.S. officials created the council in 1933 to represent the interests of U.S. investors in the settlement of the numerous dollar bond issues that had gone into default. The article shows why the council failed to perform as U.S. officials expected and outlines the process by which they increasingly interposed themselves in debt negotiations. In doing so, it considers the limitations of using private organizations to accomplish the objectives of public policy.
Policy and expertise in sovereign debt markets
At least three times in the past two decades, national governments and institutions at the regional and international levels have tried to reform sovereign bond contracts to facilitate debt restructuring. Years and continents apart, official actors did not merely regulate private contracts – mandate terms or define acceptable contracting parameters – but actively intruded in the drafting process. In most cases, governments that would not legislate or regulate instead nudged, managed, and modeled contract drafting. They convened experts, commissioned reports, and raced to produce model clauses that could be marketed to debtors and creditors. They even tried “to lead by example,” using model clauses in some of their own debt contracts. This mode of government intervention, which blurs the role of regulator and market participant, was not invented in the 1990s. The Committee for the Study of International Loan Contracts, which convened under the auspices of the League of Nations in late 1935, used similar methods to promote sovereign debt contract terms, including close cousins of the clauses at the forefront of present-day debates. Our chapter considers this method of government intervention using majority modification clauses as a case study.1 Majority modification is a species of what are now
Some Thoughts on the Nature of Economic Imperialism
One should distinguish from the start between the economic interpretation of imperialism and economic imperialism. The one is an explanation, an essentially monistic explanation, of an historical phenomenon. The latter is an aspect of the phenomenon itself: if imperialism is the dominion of one group over another, economic imperialism is the establishment or exploitation of such dominion for continuing material advantage. The definition assumes that economic imperialism is more than simple, once-for-all pillage; rather that it tries to cultivate relationships that yield a recurrent harvest of profit, as the ground its corn. Moreover, it makes no distinction between dominion established for economic motives and dominion that, for whatever reasons established, is maintained and exploited primarily for material ends. Finally, it does not confine imperialism to cases of formal rule or protectorate, but includes that “informal” dominion that is often far more effective and lucrative than direct administration.