Project Details
Projekt
Limited by Myopia? Economic Uncertainty and the International Regulation of Sovereign Debt in Times of Crisis (1970-1997)
Applicant
Professorin Dr. Julia Laura Rischbieter
Subject Area
Economic and Social History
Term
from 2015 to 2021
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 275367566
The September 2008 decision to let Lehman Brothers fail, for example, is now widely seen as the start of an international crisis of trust in the financial industry. From todays perspective this political decision of the regulators may seem shortsighted. Those responsible (apparently) expect a very different outcome, but their analysis and decisions were limited by myopia. On what basis did the regulators form the expectations that led to their decision? This project investigates how assumptions about uncertain economic situations develop, shape expectations about the future, and influence decisions. Taking the case of international financial organizations (IFOs) it will investigate their approaches to crises of sovereign debt. Between the end of Bretton Woods (1971-73) and the Asian crisis of 1997-1998 there were 58 instances of default. The majority of these sovereign debt crises subsequently led to crises of the banking, and currency systems of the states involved. Many even developed into international financial crises. As lender of last resort (IMF and the Bank for International Settlements), agent of debt restructuring (Paris Club), de facto setter of standards (Group of 30), and representative of commercial banking interests (Institute for International Finance), IFOs have played critical roles in such crises. Taking the perspective of IFO and their approaches to sovereign debt crises the project design not only allows individual decisions to be analyzed as historically contingent cases but also permits an investigation of the ways in which the expectations of the actors involved in financial crises changed over time. The project has three goals: First, it looks at the information collected by IFOs to mitigate economic uncertainty. Which information did they consider important for expectations formation? Second, it analyses the politics and practices of the production of knowledge regarding cash-flow forecasts, and asks about the existence of dominant narratives that may have evoked crises or simply prevented risks from being identified. Third, it examines how expectations influenced decision-making in crises; at the same time, however, it seeks to determine whether the crises themselves reconfigured previous experiences. Systematic investigation of these three points, through the lens of the IFOs, promises a new understanding of the mechanisms, successes and (mis)judgments associated with volatile market developments - an analysis that goes far beyond the familiar history of events. Economic sociology, hermeneutics and the sociology of knowledge will provide theoretical approaches for understanding the relationship between expectation formation, crises, and social learning. Case studies of foreign debt crises will be used to demonstrate and explain long-term developments but also breaches in expectation formation. The empirical basis of the project will be archival sources from the IFOs, and pertinent journals.
DFG Programme
Priority Programmes
