A Political Economy of Sovereign Debt in Latin America
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Between Good Faith and Defiance: A Political Economy of Sovereign Debt in Latin America by Alfredo Hernandez Sanchez Submitted to Central European University Doctoral School of Political Science, Public Policy and International Relations In partial fulfilment of the requirements for the degree of Doctor of Philosophy Supervisor: Professor Julius Horvath CEU eTD Collection Budapest, Hungary 2020 I, the undersigned [Alfredo Hernandez Sanchez], candidate for the degree of Doctor of Philosophy at the Central European University Doctoral School of Political Science, Public Policy and International Relations, declare herewith that the present thesis is exclusively my own work, based on my research and only such external information as properly credited in notes and bibliography. I declare that no unidentified and illegitimate use was made of works of others, and no part the thesis infringes on any person's or intstitution's copyright. I also declare that no part the thesis has been submitted in this form to any other institution of higher education for an academic degree. Budapest, 10 May 2020 ||||||||||||||||| Signature CEU eTD Collection c by Alfredo Hernandez Sanchez, 2020 All Rights Reserved. Word Count ≈ 57,000 ii \We think in generalities, but we live in detail." | Alfred North Whitehead Science and Philosophy CEU eTD Collection To my loving parents CEU eTD Collection Acknowledgments \All changes, even the most longed for, have their melancholy; for what we leave behind us is a part of ourselves; we must die to one life before we can enter another." Anatole France It seems appropriate for a thesis about debt to begin by enumerating all the { very many { people to whom the author owes gratitude. So many friends, mentors and colleagues have extended their unwavering support throughout the past six years that it would take another dissertation to do everyone justice. Furthermore, though I am excited to move on to a new chapter, I am saddened by the fact that this will be among the last dissertations defended in Budapest. The city, as much as the university itself, has played a great role in my life. This I attribute to all the wonderful people that I have met along the way, rather than to the beautiful architecture that surrounds us every day. I can only commence by thanking Professor Horvath, without whom this dissertation would not have been possible. His constant support and insights have been invaluable, and I am left with an unpayable debt of gratitude. Similar thanks must go to the very committed members of my committee. I would like to thank both internal members of my panel Michael Dorsch and Michael Merlingen for their continued patience and support. The same applies to Juan Flores for his interest and insights on this project. Other members of the Central European University's faculty have also been sources of inspiration, academic and otherwise. Special thanks must go to Herman Schwartz for his suggestions and help to the very end. The same applies to Wolfgang Reinicke, Sally CEU eTD Collection Schwager and Lazslo Csaba for their mentorship. Being a part of the CEU's community has been such an intellectually and personally enriching experience in great part thanks to all the wonderful colleagues I have had the pleasure of working besides. I would like to express my most sincere gratitude and appre- ciation to Alexandru Moise, Sergiu Delcea and Thomas Peak for their pro bono editorial work. Similar thoughts go out to all my PhD and lab colleagues such as Peter Visnovitz, Liza Potapova, Simona Torotcoi, Carl Nordlund, Olga Loblova, Felix Bender, Akos Mate, v Milos Resimic, Peter Marton, Eszter Farkas, Antonio Smith and Dominik Brenner, among many others. The time spent on this PhD has also taken me to many fascinating places outside of Budapest, were I have met equally fascinating people. I wish to thank Fulya Apaydin at the Barcelona Institute for International Studies for hosting my research abroad and for her advice along the way. Likewise, I am grateful to my colleagues at the American University of Central Asia for their constant support in such a new and challenging environment; especially so to Farhad Kerimov. I would not have managed to get to the finish line of this endeavor without the steadfast encouragement of friends and family. I am deeply thankful to Higuatzi Maldonado, Victor Revilla, Ella Jebelean, Apratim De, Alejandro Pedraza, Erick Aguilar, Luis and Mariana Anaya for their motivation and friendship throughout this process and beyond. Finally, I know myself blessed each day for having such an amazing family, without whom this project { or any other I could undertake { would have been quite impossible. So many people have touched my life in these past few years and contributed to this piece that it would not be possible to mention all. I apologize to those whom I could not name but I remain ever grateful for their time nonetheless. CEU eTD Collection vi List of Abbreviations BANXICO { Central Bank of Mexico BIS { Bank for International Settlements CAC { Collective Action Clause CAIC { Integral Public Credit Auditing Commission (Ecuador) CDB { China Development Bank CTA { Computational Text Analysis FED { United States Federal Reserve System IDS { International Debt Statistics Database IMF { International Monetary Fund IPE { International Political Economy MIC { Middle Income Country by World Bank Classification NCS { Narrative, Context, Salience Analytic Framework PAN { National Action Party (Mexico) PPG { Public and Publicly Guaranteed Debt PRI { Institutional Revolutionary Party (Mexico) SDRM { Sovereign Debt Restructuring Mechanism TCI { Terms of Credit Indicator (Private and Official lenders) CEU eTD Collection TF-IDF { Term Frequency / Inverse Document Frequency UNCTAD { United Nations Conference on Trade and Development UNGA { United Nations General Assembly WB { The World Bank vii Abstract What drives world leaders to support the international financial system or voice their discontent? How can this be measured? I propose a three-level analytic framework to study proactive stances towards the international regime for sovereign debt, particularly those of emerging-market actors. I argue that Latin American leaders draw on two narratives of the global political- economy: a) one which characterizes the international monetary and financial system as a zero-sum game which perpetuates economic hierarchies, and b) one which stresses its devel- opmental potential and characterizes it as a positive-sum game. I employ Computational Text Analysis (CTA) methods to measure how often the topic of international finance has been discussed in United Nations General Assembly (UNGA) speeches (1970-2018) and how it has been framed. Subsequently, I analyze two paradigmatic cases from Latin America where a proactive foreign economic policy was pursued informed by these opposing economic narratives. The first is Mexico's promotion of market mechanisms to reform the international financial ar- chitecture under Vicente Fox with the diffusion of Collective Action Clauses and the 2002 Monterrey Consensus. The second considers the politically motivated 2008 Ecuadorian default and Rafael Correa's denunciation of international financiers. CEU eTD Collection viii Table of Contents Copyright ii Acknowledgmentsv List of Abbreviations vii Abstract viii List of Tables xi List of Figures xiii 1 Introduction1 1.1 Agency at the Margins.............................7 1.2 Money as Politics................................ 11 1.2.1 NSC Analytic Framework....................... 13 1.2.2 Consilience............................... 16 1.3 Thesis Structure................................. 19 2 Narratives of Power and Finance 21 2.1 Computational Text Analysis and Narratives................. 23 CEU eTD Collection 2.1.1 Narrative Elements: Keywords and Bigrams ............. 24 2.2 Narratives of Finance.............................. 28 2.2.1 A Positive Sum View.......................... 30 2.2.2 A Zero Sum View............................ 35 ix 2.3 Narratives of International Politics...................... 41 2.3.1 Dependency and Interdependence................... 42 2.3.2 Transatlantic Divide.......................... 45 2.4 Conflicting Visions in IPE........................... 48 3 Manias, Crashes and Fallouts 51 3.1 The Evolution of the Monetary System.................... 52 3.1.1 The Original Sin............................ 54 3.1.2 Debt Cycles............................... 58 3.2 Assessing Financial Strength.......................... 60 3.3 Politics, Defaults and Creditworthiness.................... 67 3.4 Narrative Constellations and Contentions................... 70 4 Sharing the Burden 73 4.1 The International Salience of Finance..................... 74 4.1.1 The Good Neighbor Policy....................... 77 4.1.2 The Washington Consensus...................... 79 4.2 Moral Hazards.................................. 81 4.2.1 The Sovereign Debt Restructuring Mechanism............ 84 4.2.2 Collective Action Clauses....................... 86 4.3 Enduring ad-hoc-ism.............................. 89 5 Financial World Views 92 CEU eTD Collection 5.1 UN Speeches: an automated approach.................... 94 5.1.1 Sentiment Scores............................ 95 5.1.2 Bigram Topic Model.......................... 101 5.1.3 Prevalence-Polarity Measure...................... 105 x 5.2 Two Narratives in Latin America....................... 107 5.3 Discussion.................................... 112 6 Mexico under Fox: In Good Faith 114 6.1 The December Error.............................