Abstract
In previous centuries, sovereigns often went bankrupt. For example, Spain defaulted three times during the Golden Century; it defaulted seven more times in the seventeenth, eighteenth, and nineteenth centuries. France defaulted eight times between 1500 and 1800. In the nineteenth century, Austria-Hungary and Prussia defaulted five times. These defaults, which involved both colonial and continental powers, show how difficult it has been to assess sovereign creditworthiness (see Reinhart and Rogoff 2009; Suter and Stamm 1992; Winkler 1933; Wynne 1951 for an exhaustive view of sovereign defaults occurred before the twentieth century).
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
The list of sovereign securities consisted of Argentinean, Austrian, Belgian, Brazilian, British, Canadian, Danish, Dutch, German, and Mexican bonds (Moody 1900, pp. 275–293).
- 2.
Author’s computations.
- 3.
Fitch Bond Books (1936, 1938, 1939).
- 4.
Moody’s Manual of Investments – American and Foreign Government Securities (1940), Poor’s Volume (1940), Standard Bond Descriptions (1940), Fitch Bond Book (1940).
- 5.
Foreign Bondholders Protective Council (1950), Report 1946 through 1949, p. 362.
- 6.
See Strange (1967) for an unconventional yet correct argument that sovereign defaults were likely to increase.
- 7.
Standard & Poor’s Corporation Records (1955), Moody’s Municipal and Government Manual (1955), Fitch Bond Book (1955).
- 8.
For instance: Moody’s Bond Survey, “Brazilian Government, State & Municipal Dollar Bonds,” 19 June 1944, and Moody’s Bond Survey, “Peru’s Final Debt Settlement Offer,” 26 January 1953.
- 9.
For instance: Moody’s Bond Survey, “International & Foreigns – Currencies Again in Crisis,” 25 November 1968; and Moody’s Bond Survey, “International Monetary Conditions and the U.S. Economy,” 31 May 1971.
- 10.
Moody’s Bond Survey, “International Bonds Rated During 1975,” 5 January 1976.
- 11.
Moody’s Bond Survey, 3, 10, and 31 October 1977.
- 12.
Interview with David Levey (Managing Director, Sovereign Risk Unit, Moody’s Investors Service until July 2004), 16 December 2003, New York.
- 13.
This evolution accelerated as new countries issued bonds in USD (Italy in 1986 and Hungary in 1989): Moody’s Bond Surveys, 20 October 1986 and 24 July 1989.
- 14.
Moody’s Bond Survey, “Sovereign Outlook 1988,” 18 January 1988.
- 15.
Standard & Poor’s CreditWeek, 28 March 1994.
- 16.
In 1994, Brady bonds represented 61% of the negotiable debt of emerging countries (http://www.emta.org).
- 17.
Most Brady bonds were assigned a rating shortly after their issuance.
- 18.
http://www.worldbank.org, Fitch (2002) and http://www.fitchratings.com.
- 19.
S&P (2003) and http://www.standardandpoors.com.
References
Adamson M. R. (2002), “The Failure of the Foreign Bondholders Protective Council Experiment, 1934–1940”, Business History Review, Vol.76.
Dulles J. F. (1926), “Our Foreign Loan Policy”, Foreign Affairs, Vol.5.
Ferguson N. (1998), The House of Rothschild: Money’s Prophets, 1798–1848, Viking, New York.
Fitch (various issues), Fitch Bond Book.
Fitch Ratings (2002), “Sovereign Ratings and the HIPC Initiative”, 27 August.
Flandreau M. (2003), “Caveat Emptor – Coping with Sovereign Risk under the International Gold Standard, 1871–1913”, in International Financial History in the Twentieth Century: System and Anarchy, edited by Flandreau M., Holtfrerich C.-L. and James H., Cambridge University Press, Cambridge.
Folkerts-Landau D. (1985), “The Changing Role of International Bank Lending in Development Finance”, IMF Staff Papers, Vol.32, No.2.
Foreign Bondholders Protective Council (1950), Report 1946 through 1949, New York.
Huhne C. (1996), “Rating Sovereign Risk”, Bank of England, Financial Stability Review, Autumn.
Madden J., Nadler M. and Sauvain H. (1937), America’s Experience as a Creditor Nation, Prentice-Hall Inc, New York.
Moody J. (1900), Manual of Industrial and Miscellaneous Securities, New York.
Moody’s Investors Service (various years), Moody’s Manual of Investments – American and Foreign Government Securities, New York.
Moody’s Investors Service (various years), “Moody’s Bond Surveys”.
Moody’s Investors Service (various years), “Moody’s Investment Letters”.
Poor’s (various years), Poor’s Volume.
Reinhart C. and Rogoff K. (2009), This Time is Different – Eight Centuries of Financial Folly, Princeton University Press, Princeton.
Rippy J. F. (1950), “A Bond-Selling Extravaganza of the 1920’s”, Journal of Business of the University of Chicago, Vol.23, No.4.
Standard & Poor’s (various years), Standard & Poor’s Corporation Records.
Standard & Poor’s (various years), “Standard & Poor’s CreditWeek”.
Standard & Poor’s (1999), “Sovereign Defaults: Hiatus in 2000?”, Standard & Poor’s CreditWeek, 22 December.
Standard & Poor’s (2003), “First Sovereign Credit Ratings Assigned under New UNDP Initiative for Africa”, 4 September.
Standard & Poor’s (2004), “Sovereign Defaults Set to Fall Again in 2005”, 28 September.
Standard Statistics (various years), Standard Bond Descriptions.
Strange S. (1967), “Debts, Defaulters and Development”, International Affairs, Vol.43, No.3.
Suter C. and Stamm H. (1992), “Coping with Global Debt Crises: Debt Settlements, 1820 to 1986”, Comparative Studies in Society and History, Vol.34, No.4.
Sylla R. (2002), “An Historical Primer on the Business of Credit Rating”, in Ratings, Rating Agencies and the Global Financial System, edited by Levich R., Majnoni G. and Reinhart C., Kluwer Academic Publishers, Boston.
Winkler M. (1933), Foreign Bonds – An Autopsy, Roland Swain Company, Philadelphia.
Wynne W. (1951), State Insolvency and Foreign Bondholders – Volume II, Yale University Press, New Haven.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2012 Springer Science+Business Media, LLC
About this chapter
Cite this chapter
Gaillard, N. (2012). The Booms and Busts of the Sovereign Rating Activity. In: A Century of Sovereign Ratings. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-0523-8_2
Download citation
DOI: https://doi.org/10.1007/978-1-4614-0523-8_2
Published:
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4614-0522-1
Online ISBN: 978-1-4614-0523-8
eBook Packages: Business and EconomicsEconomics and Finance (R0)