UCLA

This dissertation focuses on the dynamics of sovereign debt politics and the development and usage of the Foreign Sovereign Immunities Act (FSIA). What actions can creditors take against a sovereign country that fails to repay its debts? Can legislation passed in one country to regulate international transactions have economic consequences in other countries? The chapters in this dissertation attempt to answer these questions. Previous research has focused on the role of reputation in influencing the decision of a country to repay their debt and the perception of investors. I argue, however, that US courts are a critical tool in managing sovereign debt markets and in influencing investors’ decision to invest. To understand why US courts have the power to adjudicate disputes between investors and foreign states, Chapter 2 examines the era before the advent of the FSIA. In the pre-FSIA period, two branches of government—the Executive (the State Department) and Judicial—were responsible for deciding whether a state could be sued in courts or if the traditional norms of sovereignty would be respected. As such, a primary reason why the FSIA was passed was to minimize the role of the State Department in the decision-making of the judiciary. Chapter 3 examines how judges in the United States District Court for the Southern District of New York apply the FSIA. When applying the FSIA to sovereign debt cases, liberal and conservative judges rule differently. Conservative judges are more likely to rule against defendants who are democracies than their liberal counterparts. Chapter 4 delves into the economic consequences of court judgments against the debtor nation and their impact on its economy. I argue and find that judicial decisions by US courts can affect the market because a ruling against the defendant debtor increases investor confidence to reinvest in a country, creating positive unintended consequences for the debtor state. To examine the development and role of US courts in disputes involving sovereign states, I collected and utilized three new data sets covering a time frame from 1811 until March 2022 that provide detailed information on sovereign litigation cases.