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Before 1982 sovereign debtors regularly defaulted on their debts. Since the debt crisis that commenced in that year, sovereign defaults have been rare and usually quite quickly remedied, even though crises have been occurring with increasing frequency. This article seeks to answer why there might have been this change, and whether it is in the debtors' interests. The party with the most power in any negotiation is the party that needs the negotiated result the least.1 To display this power, a party must be willing to walk away from the negotiating table. As the House of Lords has found, each party "[is] entitled, if he thinks it appropriate, to threaten to withdraw ... or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms."2 Yet, in sharp contradistinction to the historical pattern, in the past twentyfive years developing nation debtors have been consistently reluctant to stop servicing their debt, to default, even when doing so might well have increased their power in the renegotiation of their debt. Why might this be so? And has this been a productive approach to debt renegotiation? This Article seeks to answer these two questions. In seeking these answers the best place to begin is with some history. I. HISTORY OF SOVEREIGN DEBT CRISES Sovereign debt crises are nothing new. Spain in the sixteenth century and France in the eighteenth are the most commonly cited examples. The sixteenth century King of Spain would sporadically receive shipments of bullion and treasure from his overseas empire. He used these to finance fighting in Italy, France and Holland. Alas, engaging in a war is like building a house, it usually costs more than you intended and can afford. The Spanish King made up the difference by borrowing from banking houses. Periodically, he could not afford the repayments and there was, in modern parlance, a combination of rescheduling and debt relief-maturities were extended indefinitely and interest rates were greatly reduced. This happened more than once-in 1557, 1575, 1596, 1607, 1627, and 1647 to be precise. Yet the bankers had lent so much that their fortunes were linked umbilically to those of the Hapsburg Empire and thus they continued to lend. The sixteenth century debt crisis lasted a century.4 In the eighteenth century, France funded its repeated and costly wars with England by borrowing from Swiss and Dutch bankers. After almost a century of a similar pattern of defaults, reschedulings and debt relief, the limits of the lenders were reached and the loans stopped. The French monarchy collapsed a few years later. The history of Latin American debt crises coincides with the rise of independent nations in the region in the 1820s. Latin American nations, except Brazil, engaged in large bond issuances in London in the 1820s. By 1828 all were in default.5 A pattern soon emerged in lending to Latin America. Once the previous default had been resolved, and as soon as capital became abundant again in Europe, it would find its way to Latin America, usually by Europeans purchasing Latin bonds. Within a decade, the debtors would be unable to service the bonds and would default. Capital flowed south in the 1860s. The collapse came in 1873. It flowed to Argentina in the 1880s, and led to the crisis of 1890. It again went to the region in the 1920s, and with the Great Depression, almost 70 percent of Latin American sovereign dollar-denominated bonds and almost 90 percent of municipal, provincial, and corporate bonds were in default by the mid 1930s.6 The two principal exceptions to this region-wide default were Argentina and Venezuela. Argentina sold off much of its gold reserves to service its national government bonds although it had to default on many of its provincial and municipal bonds. Venezuela had prepaid most of its debt before the Great Depression and did not default. Nonetheless, as it turned out, capital flows did not resume to Argentina or Venezuela any earlier than they did to other Latin countries that defaulted on all of their sovereign indebtedness. …

Why are Developing Nations so Slow to Play the Default Card in Renegotiating Their Sovereign Indebtedness?