Coalition Governments and Sovereign Debt Crises

This article examines the domestic politics of sovereign debt repudiation. I contend that countries that are governed by a coalition of parties are less likely to reschedule their debts than those under single-party governments. I test this argument using cross-national data from 1971 to 1997 in 48 developing countries. My results show that ceteris paribus, the probability of debt repudiation is lower when there is a multi-party coalition rather than a single-party government in power. The effect of multi-party coalitions on sovereign defaults is quantitatively large and roughly of the same order of magnitude as liquidity factors such as debt burden and debt service. These results are robust to numerous specifications and samples. I complement my statistical findings with an examination of the Argentine default in 2001. I find that both the timing and the political circumstances under which the repu-diation of the country’s sovereign debt occurred correspond to the conditions identified in this paper