Quis custodiet quem? Sovereign Debt and Bondholders' Protection Before

The half-century before World War I has been characterized as the first age of global capital export. The sheer size of international capital flows during this period required an appropriate institutional basis to provide for the ex ante incentive alignment of foreign borrowers, as well as for the ex post governance of international debt contracts. These were all the more significant in a market were sovereign immunity often blocked the normal legal procedures for the enforcement of contracts. The analysis in this paper is focused on the role and significance of the bondholders’ organizations for the regular governance of this market. There has been a recent renewal of interest in the topic of bondholder protection during the first era of globalization. For some authors, much can be learned from this type of institutional arrangements, namely in the context of the problems of collective action and aggregation of bondholders in case of sovereign default. However, a correct assessment of the potentialities of bondholders ’ self-help organizations is not complete without further inquiry on three important dimensions, namely, the degree of institutional variation that characterized these organizations, the strategic interaction between them, and their ex ante consequences for the observed patterns of investment in sovereign debt. Some implications of these points are developed in the context of a formal framework, and confronted with some qualitative and quantitative evidence. I want to thank Barry Eichengreen, Bradford DeLong, Marc Flandreau, Gustavo Bobonis, and Tomas Rau for very helpul comments. I am also grateful to Jeffrey Williamson, Michael Clemens, and Christopher Blattman for generous sharing of data. I gratefully acknowledge the financial support from the Fundação Luso-Americana para o Desenvolvimento (FLAD), and from the CEMPRE- Centro de Estudos Macroeconómicos e de Previsão. The CEMPRE is supported by the Fundação para a Ciência e a Tecnologia, Portugal, which is financed by European Union and Portuguese funds