Regionalism, Multilateralism, and Sovereign Debt: Observations from a Latin Americanist Open Access

Contemporary global multilateralism is struggling. Both political support and funding have melted away, especially from the United States, the dominant booster of the (more or less) liberal international order (LIO) since the close of the Second World War. The institutional framework of the LIO is composed of global peak organizations such as the United Nations, a multipurpose organization open to membership by all sovereign states without qualification, along with specialized institutions for governing finance, trade, public health, labor rights, and a myriad of other topics (Ikenberry 2009; Lavelle 2020). Enthusiasm for the LIO was high among the governments and publics in the advanced industrial democracies—the West or Global North—through the post–Cold War “unipolar moment” of the 1990s (Krauthammer 1990–1991) but has since collapsed among large segments of the public in the United States and elsewhere. One cause of the loss of support for multilateralism in the West/Global North stands out: an underlying and inexorable global power shift is in process, which makes many opinion leaders in the long-dominant countries extremely uneasy (Wohlforth 2009).

This paper assumes that the basic structure of the twenty-first-century world system remains defined by a Waltzian distribution of capabilities among the major sovereign states, and that this interstate system inevitably is becoming multipolar (Kapstein and Mastanduno 1999; Stuenkel 2017; Waltz 1979; Zakaria 2012). Multilateralism’s traditional leaders, especially the United States, who are less globally dominant in material power capabilities than in earlier postwar decades, are increasingly unwilling to bear the weight, political or financial, of global leadership (Andersen, Cooley, and Nexon 2021). This is not a matter for exhortation or recommitment, many American politicians notwithstanding, but of objective circumstances. The declining hegemon and its major allies (roughly, the G7) confront a rising challenger, China, and its allies and clients throughout Eurasia, including Russia. Holding at bay a global evolution to a simple bipolarity between a Western/Northern bloc with the United States as its dominant member and an Eastern/Southern bloc guided by China—the “new Cold War” scenario—is a third proto-pole, the wealthy and fairly cohesive European Union, and other independent aspiring great powers, notably India.² Global multilateralism today cannot exclusively depend for its political leadership or financial support on a relatively weakened and internally riven set of advanced industrial democracies, especially the United States.

How, then, are either the institutional scaffolding or the essential purposes of global multilateralism—that is, support for the early postwar goals of great power peace, free trade, and incremental redistribution, plus the newer issues of climate protection and basic human rights—to be sustained? The major postwar international institutions require a wider and deeper base of international legitimacy, which is ultimately a more serious challenge to their effectiveness than chronic underfunding, given the tasks they are expected to accomplish. Global multilaterals also need new ideas, including ones they have long disparaged as excessively radical or unworkable. For example, much-reduced patent protections for essential drugs is a public health policy long championed by the Global South. Yet it required a deadly worldwide pandemic for the trade, legal, and foreign policy communities in the home economies of major pharmaceutical firms to begin to debate this “socialist” option. The championing of free trade in goods and finance, but not in labor, has been another de facto forbidden debate, although the underlying economics are compelling (Pritchett 2018). In a world becoming multipolar, the previously dominant major advanced industrial democracies need more support from the Global South for postwar more-or-less liberal multilateralism to survive. The Global North will be pushed to engage in serious policy debates on issue linkages that its leaders might prefer to ignore.³

This essay proposes that increased international activism by strong, assertive regional groups from the Global South is an intriguing option for strengthening multilateralism. Nonetheless, advocates of effective global multilateralism are often suspicious of regional multilateralism, especially outside the European Union. Thus, we begin by investigating the origins of this bias. Looking from the center of the struggling LIO outward, one can identify some sources of the distrust of independent regionalism (see also Acharya 2014). Its recent historical roots lie in the ways that Anglophone scholarship has conceptualized the relationships between regionalism and multilateralism. Consider the observation that the majority of the mainstream academic literature over the past half century on the interactions of “multilateralism” and “regionalism” considers one of two sectors: trade or security (defense).⁴ The economics literature on trade posits global trade liberalization as a desirable goal, which will generate positive sum outcomes at the national and global levels as long as certain fundamental conditions—competitive markets for both producers and customers, no intracompany transfer pricing, and the rule of law—are met. Regional trade agreements (RTAs) are understood as sources of common external tariffs or other nontariff barriers to free commerce, and thus viewed negatively. Moreover, the basic political economy of most trade models posits concentrated opposition from locally scarce and immobile factors of production within a protected market, as their relative returns must fall with market opening, even while the overall cost of a given basket of goods for society at large becomes cheaper. By this logic, RTAs are simply protected markets covering slightly larger geographic areas. The mainstream trade literature is thus quite hostile to them, as they are understood as undermining the efficiency of the (global) multilateral trade regime. The editors’ introduction to a much-cited conference volume efficiently summarizes the range of nuances around this central theme, but without challenging the basic judgment that, even in the case of the (then) European Community, “regionalism is as likely to be destructive of an open trading system as it is likely to be a positive force” (de Melo and Panagariya 1993, 18). A quarter century later, Albertin (2008, 28) bluntly concludes, “Regionalism crucially affects the incentives for multilateralism; multilateral trade liberalization that would have been otherwise feasible is rendered infeasible by a politically supported regional trade agreement.”

Subsequently there were swings in policy-relevant thinking about trade. For example, the enthusiastic market-opening (“neoliberal”) advice from the major international financial institutions during the 1990s resulted in the new popularity of “open regionalism,” a rebranding exercise intended to signal regional economic cooperation that was not hostile to global free trade. Empirically, the major referent was Southeast Asia, where local industry already was integrated into global value chains organized by US and Japanese multinational firms. By the 1990s, the main goals of the most influential states within the peak global trade multilateral organization, from 1993 the World Trade Organization (WTO), were not about traditional trade in goods, in any case. Instead, the advanced industrial states, especially the United States, pursued other aims—including intellectual property protection, foreign investor rights, and trade in financial services—which had no necessary relationship to the elegant models of comparative advantage that had underpinned previous trade multilateralism (Gallagher and Kozul-Wright 2022, 75–103). However, from the viewpoint of elite perceptions, particularly among professional economists, the damage was done: regionalism had been tarred as harmful to multilateralism. The point here is not about the accuracy or not of differing views of RTAs, but merely to observe that “regionalism” remains a term with a bad smell among many or most economists in the advanced industrial democracies.

The international relations (IR) literature on the global-regional nexus in the security arena has a different problem with independent “regionalism,” which is that much Northern IR scholarship doesn’t take Southern regionalism seriously. Many scholars writing during the long Cold War viewed world regions primarily as adjuncts of contending hegemons or great powers, with little independent agency. This intellectual legacy represents a different, but also potent, source of inherited bias. National security experts in both the academic and policy world often conceptualize multilateralism via the lens of collective security, not as carefully explained by theorists, but as actually practiced. Collective security—a treaty binding signatories to come to the aid of any member suffering external attack—was first attempted at the global level in the early twentieth century, through the admirable yet ultimately unsuccessful League of Nations. The postwar designers of the United Nations attempted to do better, balancing the idealism of the UN General Assembly’s “one nation, one vote” structure with the realism of the UN Security Council, which seeks to preserve great power peace with its inclusion of five veto-wielding permanent members and rotating participation by others elected from global constituencies. In practice, from the 1950s onward, Cold War rivals the United States and the Soviet Union also organized networks of regionally based mutual defense pacts (“collective security”) with their allies and dependents, centered around themselves as hegemons. Consequently, much of mainstream IR literature understands “regions” and “regional orders” as referring to the interesting politics of pacts nominally offering collective security, but in practice constituting an unevenly credible guarantee of the dominant player to protect the others (Buzan and Wæver 2003; Solingen 1998). In this mental model, which remains dominant among national security scholars—and certainly within the foreign policy and defense establishments of the United States and many of its allies—regional organizations are conceptualized as either polite fictions (when organized by the liberal hegemon) or emerging threats (when organized by an actual or potential rival).

Beginning in the 2000s, a newer literature, coexisting with the earlier conceptions, has investigated more genuinely “regional” security organizations in the Global South (Acharya 2003; Koga 2017; Mares and Kacowicz 2015; Suarez, Villa, and Weiffen 2017). However, and unsurprisingly if one thinks through the implications, the stated aims of most contemporary security communities not anchored by global great powers do not include actual mutual defense guarantees. They are probably best viewed as region-building political exercises, addressing less-demanding tasks such as information-sharing and joint efforts to fight cross-border criminal activity. Overall, the attitude among most policy elites in Washington, DC, and other great power capitals toward contemporary security communities located within the Global South falls somewhere between indulgent and dismissive. In sum, and with the significant exception of Western European regionalism (on which more below), much mainstream academic literature has dismissed independent efforts to organize multilaterally at the regional level as either dangerous (international economists) or irrelevant (IR scholars).

Default views of independent regionalism are more positive throughout the Global South. Many national political leaders and other policy-interested elites—including journalists, professors, activists, business leaders, and others—from small and intermediate powers perceive themselves to be poorly represented in global multilateral institutions, within which the views of great powers, especially superpowers, appear to shape the agenda.⁵ In this situation, it is reasonable for lesser states to form coalitions to enhance their voice, as happens internally in democratic legislatures. Clearly, nongreat powers can collaborate either on the basis of region or some other organizing principle, such as similar preferences within a global issue arena—as in OPEC, the Cairns Group, or the G77. States might also cooperate vis-à-vis a common external threat, or even a common aversion to a group of incumbent powers perceived as dominating global multilateralism, as with the cross-regional BRICS group (Roberts, Armijo, and Katada 2018). Even in these forums, of course, countries such as Saudi Arabia and China often are primus inter pares.

Nonetheless, world regions, somehow, are always with us: the idea of organizing within geographic neighborhoods to address common problems is perennial, partly because it is easy to grasp. Many political and opinion leaders believe that geographic and identity neighborhoods have enduring interests and preferences in common, however acute their temporary bouts of intraregional sibling rivalry. There is also the strong example of the successful European Union, which itself in earlier guises sometimes was perceived as undercutting global multilateralism, yet in recent decades has been an essential and effective supporter of world-level international organizations. From a pragmatic viewpoint, it appears easier to construct and maintain effective regional caucuses and groups than cross-regional ones. Common language, culture, and shorter travel distances all help. Moreover, there already exists some formal regional representation within global multilateralism, including within the peak international financial institutions. In the International Monetary Fund (IMF) and the World Bank, the formal representative system prioritizes large donors to the organization, while incorporating a regional flavor via the system of executive directors, a minority appointed by great powers, and the majority elected to represent constituencies of smaller countries, which are mostly regionally based.⁶ From the perspective of most small and intermediate powers, building a strong regional identity around joint preferences, and seeking informal influence within global multilateralism, appears a reasonable strategy.

Three subsections follow, the first giving a brief overview of the mixed achievements of recent Latin American formal regionalism, the second offering a brief comparison with European regionalism, and the third arguing for modest conceptual stretching to include transnational regional organizing in our understanding of “regional” activity that might hold implications for global multilateralism.

Latin American regionalism is either a glass half-empty and draining (Malamud 2011; Malamud and Viola 2020), or half-full yet promising (García, Pereira, and Muriel 2020; Gómez-Mera 2018). Multiple regional groupings exist, which makes Latin America starkly different from the hierarchically organized European region. The tension among competing regional visions has been and remains acutely important within Latin America (see also Armijo 2013). The United States, both a global and a hemispheric hegemon, strongly prefers to be the regional hub. In the first half of the twentieth century, the United States provided active leadership and ample funding (for the time) in support of a hemispheric version of regionalism, organized by and around US leadership. Known as Pan-Americanism, hemispheric regionalism was largely accepted by Latin American elites as having net benefits, although Mexico in particular repeatedly, but mostly unsuccessfully, tried to win regional policy choices closer to its own preferences (Long 2020; Thornton 2021). Pan-Americanism was sufficiently important to the United States that, following the Second World War, US diplomats insisted on language in the UN Charter that could be interpreted as providing the United States with a basis in international law for continuing what US policymakers conceived of as its historic responsibility to intervene militarily in any hemispheric state. By defining such interventions as “collective self-defense,” the United States could retain privileges it had claimed via the (Teddy) Roosevelt Corollary of 1904 to the Monroe Doctrine of a century before (Henrikson 1996, 42–43; Skidmore and Smith 1992, 326).

After the war, Pan-Americanism became “inter-Americanism,” whose most important institutions have been the Organization of American States (OAS) and the Inter-American Development Bank (IDB), both headquartered in Washington, DC. Intended to be helpful to the region, these are also organs of American foreign policy. Although the United States casts only a single vote in the multipurpose OAS, it often imposes its preferences, employing a mix of diplomatic carrots and sticks. For example, Cuba was suspended shortly after the 1959 Cuban Revolution, at the insistence of the United States, and remains so, despite strong support for its reintegration from the majority of countries in the hemisphere.⁷ Active in the fields of human rights and democracy, the OAS provides legal and forensic support for investigating suspicious deaths of journalists and activists, sometimes angering member governments, including the United States. The OAS also runs military and police training academies, although recently it has scaled back some of its defense-related activities. The IDB, which opened in 1959, has weighted voting privileging its major donor, just as the World Bank and the IMF do. In 2020, US President Trump used diplomatic coercion and explicit financial inducements to secure votes for its nominee, a conservative Cuban American, to become the new president of the IDB, breaking a previous precedent that the bank’s head would be a Latin American citizen and causing five former Latin American presidents to pen a joint condemnation.

Since the mid-twentieth century, there also have been strong traditions of independent Latin American regionalism and subregionalism, mostly organized from the Southern Hemisphere. The major independent Latin American organizations in the twenty-first century were the Union of South American Nations (UNASUR) and the Economic Community of Latin America and the Caribbean (CELAC). UNASUR, founded in 2008, was designed to be a full-spectrum regional multilateral institution, member supported, with a headquarters in Quito and a permanent professional staff drawn from throughout the region, complemented by a regional parliament. Nonetheless, political disputes led left populist governments in Venezuela and Bolivia to reject previously agreed rules for rotation of the chairperson, and between 2018 and 2020 most of the other countries suspended their memberships or withdrew, including Ecuador, whose president requested return of the headquarters building. The once-promising project for integrated regional infrastructure in South America (IIRSA) was one of the sadder casualties. Centrist and center-right governments, led by Chile, quickly created a less ambitious substitute, PROSUR, the Forum for Progress and Integration in South America, principally a summit process, but without the governance aspirations of either the OAS or UNASUR. CELAC, founded from the left in 2011 and receiving modest encouragement and assistance from China, is at most a summit process, with irregular meeting dates and topics. Although no country has withdrawn, CELAC has a modest rhetorical and virtual presence, but lacks any joint policy agenda.

There are also important subregional groupings. Those based in the Northern Hemisphere are mostly trade associations and include the United States as their dominant member. The North American Free Trade Agreement (NAFTA, in 2018 renegotiated and renamed the United States-Mexico-Canada Agreement, or USMCA) entered into force in 1994, and the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR) in 2006. The USMCA and CAFTA-DR regulate increasing amounts of trade and investment, but do not allow for free movement of labor among members or aspire to wider joint policy-making. Within South America, in contrast, the most significant “minilateral” groupings have had both political and economic aims. The most important in the twenty-first century are the Andean Community (CAN, founded in 1969, including all of the Andean countries except Chile from 1977 and Venezuela after 2006), the Common Market of the South (MERCOSUR, founded 1991 by Argentina, Brazil, Paraguay, and Uruguay), the Bolivarian Alliance (ALBA, founded in 2003 by Venezuela and Cuba as an explicitly anticapitalist club, which has fallen into disarray since the death of Venezuelan President Hugo Chávez in 2013), and the free-trade-oriented Pacific Alliance (founded in 2011 by the then center-right governments of Colombia, Peru, Chile, and Mexico). CAN fields two successful regional financial institutions, a development bank and a reserve fund, each of which has expanded beyond the subregion and now conceives of its mission as regionwide. MERCOSUR, also relatively well institutionalized by local standards, continues modest technocratic work but has struggled during the administration of Brazilian President Bolsonaro (2019–2022), a severe critic of multilateralism. Two years into the global pandemic, and despite much striving, independent and policy-relevant Latin American regionalism exists mainly in the subregional organizations run from South America, although they are also highly vulnerable to partisan schisms when member countries’ presidents aren’t aligned.

One possible, and frequent, conclusion drawn from the empirical record is that Latin Americans simply cannot cooperate multilaterally at the regional level without strong leadership from the United States, even while hegemonic regionalism breeds fatalism or resentment among many strategic thinkers from the region. Reformers within and outside Latin America incessantly compare difficulties of formal regionalism in the hemisphere with the relative success of the European Union. Latin America’s weak multilateralism seems especially egregious given the similarities of language, religion, and colonial and postcolonial history. An alternative, more generous, interpretation of Latin America’s record would highlight three favorable structural factors that promoted European multilateralism, but which Latin America lacks: a common external enemy, generous funding, and intraregional multipolarity.

First, Cold War fears of a resurgent Soviet Union strongly propelled Western and Central European regionalism in the decades immediately following the Second World War. The importance of a common threat has been clearly seen in the increased European cohesion sparked by Russia’s 2022 invasion of Ukraine. Latin America and the Caribbean have never had a common external threat in the twentieth and twenty-first centuries—except that posed by the United States, which simultaneously spearheaded inter-Americanism. Second, European reconstruction largely was funded from outside the region, via the US Marshall Plan. US administrators strongly promoted the European Coal and Steel Community, which intentionally integrated the economies of Germany and France and was the precursor organization of today’s European Union. Efforts at regional and subregional economic integration in Latin America recur frequently but have had no deep-pocketed external benefactor. As noted, economic regionalism in Northern Latin America and the Caribbean has been explicitly US-centric, with the main carrot being enhanced market access to the United States, not development funding. Independent Latin American economic region-building has usually originated in South America, where reformers have sought to emulate the EU path of economic cooperation leading to political cooperation. Given South American geography, economic integration implies large initial investments in regional infrastructure, a regional quasi-public or collective good. Such investments are expensive and necessarily front-loaded. Chinese loans to governments and direct investments in South American infrastructure both dramatically increased in the early twenty-first century but have created new links to East Asia, not Latin American regional economic integration.

Third, and returning briefly to the neorealist international relations framing with which this essay began, the distribution of capabilities among European states in the post–Second World War era was more favorable to regional institution-building than that among Latin American states. In the immediate postwar decades, France, Germany, and Italy jockeyed with one another, and with Britain at some remove, but eventually joined the European Union. Within Latin America, the only possible intraregional balancer for Brazil is Mexico, whose independent political and economic policy-making is profoundly constrained by its links to the United States. Brazil comprises approximately half the economy, population, and territory of South America, while having an income per capita that is lower than that of Uruguay, Chile, and sometimes Argentina. The remaining nine Latin countries of South America fear allowing themselves to become vulnerable to Brazil, while Brazil’s voters tend to resent even modest expenditures (proportionately equivalent but absolutely larger) that might benefit wealthier countries at their expense. All other things being equal, South America’s unipolar structure makes cooperation more difficult (Scholvin and Malamud 2020).

This essay’s initial major section argued that, in a world becoming multipolar, the major advanced industrial democracies need allies in support of the (aspirationally) liberal postwar international order. Meanwhile, most emerging and developing countries are unlikely ever to become global great powers yet seek greater voice in global multilateralism. Independent regionalism addresses both challenges. In addition to adding a crucial source of political support and legitimacy for peak multilateral organizations, greater regional participation by emerging and developing countries offers innovation in the form of new policy ideas. But such disciplined regionalism in the Global South is thin on the ground.

We began the discussion of regionalism conventionally, defining a “region” as a geographic neighborhood of sovereign states loosely united through some perception of common identity. The standard definition of “regionalism,” then, means the intentional construction of viable, enduring, legitimate formal institutions within the geographic-cum-affinity neighborhood. The members of such institutions, who are sovereign countries, minimally engage in regular cross-border consultation and, more ambitiously, articulate and implement joint policies or programs. A region or subregion needs at least three member states. The fact that most world regions have fuzzy membership sets is unimportant, as a common strategy is to begin with a core group and then expand, as was the case with the European Union. Yet, as per the previous subsection, formal Latin American regionalism is weak, inconsistent, and divided, partly due to a host of difficult-to-surmount structural disadvantages as compared to European regionalism.

Or we could conceptualize our topic differently, without expecting that regionalism everywhere will evolve like the European Union (Acharya 2014, 2016). The easy stages of formal state-to-state regional multilateralism—regular summits with occasional collective responses to crises—may be all that can be expected from Latin America at present. Meanwhile, other forms of pre-regionalism or proto-regionalism can approximate some of the benefits anticipated from formal regional multilateralism, including greater legitimacy for global governance organizations, as well as enhanced international voice, de facto if not de jure, for lesser powers. It is clear, for example, that transnational organizing by nonstate actors from Latin America has profoundly influenced norms in the global issue arenas of human rights, indigenous rights, and environmental and climate justice (Keck and Sikkink 1998). And arguably, the most important, active, and consistent broad-spectrum “regional” organization in Latin America for many decades has been a subordinate body of the United Nations, the Economic Commission on Latin America and the Caribbean (ECLAC, or CEPAL), which has drawn on institutional resources from global multilateralism—funding for its offices in Santiago, Chile, and access to the UN’s vast research and dissemination resources—to become a very significant source of independent ideas for the wider world across seven decades (Fajardo 2022).

Why not simply expand our definition of “regionalism” (Acharya 2014)? Analytically, this paper’s proposal to do just this parallels the evolution in IR scholarship from discussions of international organizations, whose membership is limited to sovereign polities, to studies of global governance, which consider both state and a wide variety of nonstate actors, and place greater emphasis on ideas, perceptions, and policy entrepreneurs (as in Avant, Finnemore, and Sell 2010). One might conceptualize this as “policy regionalism,” meaning a broad range of purposive, policy-relevant cooperation across national borders within the geographic neighborhood. This definition includes cooperation among sovereign governments, whether operating via formal international organizations or less formal clubs, summits, or irregular caucuses. It also incorporates cross-border technical cooperation by national or subnational government entities operating under the political radar in various policy arenas, from public health to border controls (Merke, Stuenkel, and Feldmann 2021). Finally, “policy regionalism” includes the efforts of nongovernmental policy entrepreneurs and issue-arena experts from the region—frequently former or aspiring national policymakers, employed in academia, consulting, global multilaterals, or nongovernmental organizations, or by organized economic interests while they await a more official perch—who cooperate with their equivalents across borders. The comparative politics literature terms such groups regionally focused “transnational activist networks,” while the IR literature sees regionally based “epistemic communities” (Haas 2021; Keck and Sikkink 1998). Such regionally inflected cooperation may have primarily intra-neighborhood goals. But very often the aims of policy regionalisms also include influencing extraregional debates, whether by voice or by example. In the remainder of this essay, we consider both multilateral and transnational varieties of purposive, policy-oriented, regionally focused cross-border cooperation.

This essay’s first major section argued that, in a world becoming multipolar, independent regionalism in the Global South could provide both enhanced legitimacy and valuable new ideas for the universal, worldwide multilateral organizations and global governance regimes of the LIO. This second section has contested the easy conclusion that Latin Americans simply cannot or will not cooperate regionally. In contrast to the “success” case of Europe, where hierarchical, centralized, supranational policy-making institutions were created, the structural conditions existing in the Western Hemisphere often undermined the success of formal multilateral organizations in Latin America. However, if we think in terms of policy regionalism, led by both state and nonstate policy entrepreneurs, we may identify ways in which Latin American regionalism has supported global multilateralism, both by enhancing its legitimacy across the Global South and, especially, by being a source of needed new ideas.

Building on the argument above, this third major section proposes that Latin American regional cooperation in some arenas is quite consequential and provides important support to global multilateralism. The first subsection introduces the policy arena of sovereign debt, highlighting the significance of innovative ideas. The second subsection reviews a small but important achievement of formal regionalism in this policy sector, and the third subsection analyzes the ongoing participation of the Latin America–centered transnational epistemic community in wide international debates on needed reforms of global financial governance.

Sovereign debt, meaning central government public debt, is essential for national economic development. All national governments need access to finance, which necessarily spikes at irregular intervals, as during crises including wars, plagues, and other natural disasters, but also during a push for major development projects such as building heavy infrastructure. The bulk of treasury resources should come from citizens’ taxes, licenses, and fees, but the sums collected are at best erratic. Even assuming an underlying balance in the central government budget—for simplicity of exposition, not as an ideal—the uneven flows of both expenses and revenues imply the need for borrowing to smooth resources across time. Conveniently, modern capitalist economies display a complementarity of needs, as private wealth holders seek a safe haven for their money, creating a demand for the asset of public bonds. There is also a political corollary to the economic arguments for public debt: a government’s ability to fund a substantial public debt is critical to the essential political task of national state-building. An ample economic and political history literature identifies sound public finances, and especially a well-functioning public debt market, as the sine qua non of a successful great power, perhaps even more important than military prowess (Ferguson 2001; Schwartz 2010). These statements apply to all contemporary mixed and market economies.

However, national policymakers in countries outside the advanced industrial core countries confront an additional layer of difficulty in managing their public finances, which qualitatively alters the nature of the basic public debt management challenge. The problem for economies located outside the core of the global capitalist system has always been that they can’t borrow, or borrow enough, from their own private citizens. Instead, they must tap foreign private investors, creating additional vulnerabilities for both creditors and debtors. From the viewpoint of nineteenth- and early twentieth-century Latin American sovereign debtors, a critical vulnerability was the propensity of foreign private bankers to call on their home governments to respond to default by sending troops. Gunboats and soldiers could commandeer the customs house at a major port to ensure that foreign debts were paid (Drake 1997). Since the mid-twentieth century, international debt dramas wear new clothes, but the fundamental conflicts, and the power relations among the parties, remain. An expert epistemic community centered in Latin America has been at the forefront of efforts to reconceptualize and reconfigure global financial governance around these issues.

An example comes from the rapid spread of a catchy, and extraordinarily apt, designation for the existential situation of Latin American countries with respect to international capital markets. International economists Eichengreen, Hausman, and Panizza (2002), the latter two from South America, coined the term currency “original sin” to describe the difficulties faced by governments in “soft currency” countries when they seek to borrow in global private capital markets via debt instruments denominated in their home currencies. No matter how good one’s (macroeconomic) deeds, the taint of sin (in the form of higher risk premia) sticks. The hypersonic spread of the term, now ubiquitous in any academic discussion of Latin American public finance, illustrates the depth of frustration felt by many policy-oriented economists, obliged to spend their efforts worrying about “credibility” with cynical, often poorly informed private investors rather than planning for economic and social development. Although the three authors subsequently sought to limit the term’s employment to represent a narrow set of technical dilemmas, in the wider policy discourse, “original sin” has been generalized to represent multiple dimensions of the challenges faced by countries with soft currencies (Carstens and Shin 2019; Eichengreen, Hausmann, and Panizza 2007). The problem that these countries, usually in the Global South, experience is that their national money is not one that foreigners, or often even their own wealthier citizens, wish to employ for any of the traditional functions of a currency: as a transaction vehicle, unit of account, or store of value. Latin American currencies cannot fulfill even half of the six functions (each of the above uses both at home and for foreigners) needed for a genuinely international currency (Cohen and Benney 2013, 1020). Investors are indifferent to whether this outcome derives from Latin American countries’ domestic economic malfeasance and incompetence—or instead from their overall lack of global political power. A widely held if seldom explicitly voiced view among the epistemic community of Latin American economists is that a dearth of international political influence remains the root cause of this “sin.”

In fact, mainstream scholars in the dominant currency country, the United States, are finally beginning to “see” the degree to which currency power both reflects and enhances national political power, as foreign policy experts worry about the gradually expanding international use of China’s currency, or whether financial sanctions on Russia can work (Cohen 2018; Kumar and Rosenbach 2020). As more pundits in the Global North contemplate the possibility of a world with lessened US dollar dominance, the role of political-military power in currency hegemony becomes easier to see.

For present purposes, the crucial point here concerns the influence of powerful global norms, including in ostensibly highly technical sectors, governing which topics are deemed to be too fanciful or jarring for polite company. Market fundamentalist business leaders, policymakers, and academic economists, overwhelmingly based within the advanced industrial countries of the Global North, continue to dismiss the idea that international political power influences currency levels or financial markets, while this insight, seen from emerging and developing economies, is almost too obvious. By the same token, many in the Latin America–focused epistemic community of economists propose additional ideas relevant to ameliorating currency “sin” and sovereign external debt. Some clarity can be gained by examining responses to challenges of insolvency and illiquidity.

Emerging-market and developing countries have difficulty funding their government debt domestically. The former, which are middle-income countries, may access international private capital markets but also confront periodic debt crises (Reinhart and Rogoff 2009). Debt crises are of two types: illiquidity and insolvency. A debtor experiencing temporary illiquidity has immediate bills, including interest on its debt service on its loans, but expects funds to arrive shortly, as from anticipated sales for businesses, or taxes for governments. The illiquid country needs access to short-term funding. If its creditors are domestic bondholders, the government can impose new taxes (including disguised taxes such as obligatory rollovers of government bonds) or expand the domestic money supply beyond reasonable expectations of economic growth, in the aggregate generating inflation and expropriating holders of domestic currency assets (Calomiris and Haber 2015). However, if the sovereign debt is foreign, debt service requires hard currency. One option is to borrow from a multicountry stabilization fund, in which member countries previously have deposited sums of their own currencies, as in the IMF, or have pooled portions of their hard-currency-denominated foreign exchange reserves.

In 1978 five members of the Andean Community (Bolivia, Colombia, Ecuador, Peru, and Venezuela) created the Latin American Reserve Fund (FLAR) to serve as a repository for a portion of the foreign exchange reserves of members (Fritz and Mühlich 2022, 145–47). These would be available to provide temporary swaps of a member’s local currency for hard currency reserves contributed by others in order to smooth short-term balance of payments problems. Thus, the FLAR does nothing to alter the international political economy, but it helps member states cope. It is a stellar example of the type of less contentious regional multilateral cooperation in various technical arenas that functions in Latin America, even during eras of profound partisan rancor (Merke, Stuenkel, and Feldmann 2021). FLAR also is small: FLAR’s reserves as a share of its members’ collective GDP are merely a sixth of those of its East Asian counterpart (the Chiang Mai Initiative Multilateralization Agreement, or CMIM) and a fifth of the amount available to members of the European Stabilization Fund (Ocampo 2015, 168). However, unlike the more famous CMIM (comprising China, Japan, Korea, and ten ASEAN countries), which hadn’t by mid-2022 lent any funds, FLAR actually makes short-term illiquidity loans. Through 2018 it had provided fifty-two loans, at least one to all members except the two newest, with almost half going to Ecuador (Rosero 2019, 3). In 1988 the FLAR decided to scale up, adopting the goal of expansion to all of Latin America, and in the early twenty-first century added three small countries outside the Andean subregion: Costa Rica (2001), Uruguay (2005), and Paraguay (2014).

Both the FLAR and its companion institution, the Development Bank of Latin America (CAF, originally the Andean Development Corporation), are widely perceived as successful examples of formal multilateralism, in a region littered with institutions that have become dysfunctional. They are also, and by design, the product of independent Latin American regionalism. Insiders attribute the success and popularity of FLAR and CAF to the strong feelings of ownership felt by members, who are simultaneously owners and clients (Fritz and Mühlich 2022; Garcia 2012; Ocampo 2015; Titelman 2006). Other attractive features lie in institutional and operational details. There are no purely creditor countries to dominate borrowers. There is no formal conditionality, except the requirement that for the longer loans, especially the three-year balance of payments loans, recently being phased out, borrower governments must present the FLAR with a plan detailing how the loan will be used and repaid. Voting is “one country, one vote.” Shorter-term loans of a few months to a year can be approved by the professional staff, with only the longer-term credits subject to a vote of the executive board, representing the owner-members. Despite its small size, FLAR’s nimbleness has enabled it to offer, in effect, bridge loans to members, as FLAR needs less than a month to decide as contrasted to the IMF process, which may consume six months. Although the selection of an executive president, requiring a two-thirds majority, has sometimes been contentious, successful and apolitical heads have secured multiple terms. Even neighbors with tense political relations have not interfered with one another’s access to FLAR credit (Rosero 2014, 70–71, 82). In sum, the FLAR, a small but largely successful institution designed to respond to sovereign illiquidity, managed to duck political controversy through most of the first two decades of the twenty-first century. It has been small, self-contained, and technocratic.

Referring to a theme raised earlier in the discussion of Latin American regionalism, and unlike the inactive CMIM, FLAR members are relatively equal in size, possibly easing intragroup cooperation. Through the decade of the 2010s, an important debate around the FLAR was about how to entice the region’s larger countries, particularly Brazil and Mexico, to join. Although the fund was unlikely ever to be large enough to offer these countries emergency loans, an idea endorsed by both the center-right and center-left wings of the expert epistemic community has been to move toward a global financial safety net (GFSN), through which major intermediate powers among emerging economies could anticipate early IMF help in the next global financial crisis, while regional powers’ own substantial foreign exchange reserves would help stabilize the smaller countries (Mühlich et al. 2020; Fritz and Mühlich 2022; Gallagher and Kozul-Wright 2022). The larger Latin American countries also have received emergency bilateral swap offers during recent periods of international financial contagion, with the US Federal Reserve Bank extending swap lines to Brazil and Mexico during the Asian financial crisis and the coronavirus pandemic, while the People’s Bank of China (PBoC) offered swaps to a large number of countries throughout the Global South, including Argentina, which was one of the first to access this option (Handwerker 2020). Unfortunately, relying on bilateral swaps to be available to intermediate powers undercuts one of the main intended virtues of multilateralism, which is to depoliticize access.⁸ Moreover, for Brazil, despite its undoubted economic and financial weight in the region, being perceived as potentially subsidizing its much smaller but wealthier neighbor, Uruguay, is not good domestic political optics: the concept of preventing financial contagion as a regional public good is not easy to explain to a population that already has very low trust in politicians.

The second type of debt crisis is one of insolvency: under current and anticipated conditions, the debtor can never catch up. In early modern Europe and elsewhere, society’s reaction was purely punitive: throw the defaulter in jail as a deterrent to others. The alternative to debtors’ prison is creation of a bankruptcy process, which all contemporary market economies provide for both individual and corporate debtors. The political economy rationale for a legal bankruptcy regime is that both creditor(s) and debtor will be better off, as will society as a whole, when the debt is restructured (that is, reduced) and the debtor is allowed to shield the equivalent of a home, a car, and funds for basic living expenses from attachment by creditors. Bankruptcy protection allows the debtor and the debtors’ dependents to continue as productive members of society.

Logically, it makes a great deal of sense, on practical as well as ethical grounds, to extend similar protections to countries and their citizens. Thus far, however, there is no sovereign bankruptcy regime. A hodgepodge of de facto and de jure procedures and venues has provided restructuring for most sovereign debtors, while also enabling most private creditors to escape their bad loan or bond portfolios without going under themselves. The results, however, differ widely across similar cases occurring in different jurisdictions or years, and many Latin American economists perceive these outcomes as capricious at best (Ocampo 2017). A key institution within modern debt resolution within national economies—bankruptcy protections—does not exist for countries. Defaulting countries, and their ordinary citizens, enjoy no firm basis in international treaty law, nor a dedicated multilateral institution, to claim that any given restructuring package is unacceptable or unlawful because it violates the core principle that countries must be left with the functional equivalent of sufficient income to live and be productive. An agreed-on international bankruptcy process or policy would address the problem of entire countries being left to languish in the functional equivalent of debtors’ prison, lacking sufficient resources to begin investing and growing again.

The Latin America–based expert epistemic community has repeatedly returned to this issue, based on the region’s long experience with the problem. As of 2000, the de facto global sovereign insolvency regime remained that which had been established during the 1980s Latin American debt crisis: the IMF, along with the national government(s) of the home countries of the principal private creditor institutions, usually led by the United States, would coordinate the creditors, and each creditor group then would treat with each debtor government separately. In many cases, the IMF, the World Bank, and other multilateral financial institutions loaned borrowers enough to repay private creditors, who then exited the sector, leaving borrower governments with equivalent or larger new debts.⁹ Many expert observers of Latin America concluded that countries had suffered unnecessarily during the entire “lost decade” of the 1980s, unable to escape the trap of their past debt, borrowed in the booming 1970s (Felix 1990; Ocampo 2014; Stallings 1990). Intentionally or not, the global financial governance regime, as it operated in practice in the late twentieth century, generated clearly worse economic outcomes for troubled Latin American debtors than those that these same countries had experienced during the chaotic sovereign defaults of the early 1930s—which had not been multilaterally managed.

The proximate background to the current iteration of the debates over establishing a global sovereign bankruptcy regime was the (East) Asian financial crisis of 1998–99. In this crisis, borrowers were often private firms and banks that had contracted loans abroad, anticipating continuation of fixed exchange rates. When the crisis hit, national central banks in Thailand, Indonesia, and South Korea in effect assumed the foreign debts of their private sectors, ran out of foreign currency, and turned to the IMF, which then had leverage to exact reform conditions in exchange for emergency financing. The IMF-prescribed cure for sovereign defaults included both domestic austerity, in order to free up payments for external debt service, and further capital account liberalization, which provoked additional panicked private capital outflows. Many prominent economists, including Joseph Stiglitz, who resigned as chief economist of the World Bank in late 1999 over this issue, protested that the cure was both inappropriate and worse than the disease (Blustein 2001; Stiglitz 2002).¹⁰ In Latin America, both Argentina and Brazil experienced significant financial contagion.

Moreover, by the turn of the century, the new dominant shape of sovereign external borrowing was syndicated (multilender) loans, subsequently split and sold as bonds to retail and institutional investors. Unlike the Latin American debt crisis of the 1980s, it was no longer possible to get the six main creditors into a room and do a deal. This made the implications for both the global financial system and troubled debtor countries more difficult to manage. Then, in late 2001, Anne O. Krueger, then first deputy managing director of the IMF, proposed creation of an explicit international sovereign bankruptcy regime via a high-profile address in Washington, DC (Krueger 2001). The most lasting contribution of Krueger’s plan was its semiofficial endorsement of the hitherto heterodox analogy of sovereign default to the situation of individual or corporate bankruptcy. The main goal of any reform would be to return the bankrupt debtor to solvency as soon as possible, a process that would imply prioritizing creditors, fairly distributing the “haircuts” among them, and leaving the country the sovereign equivalent of a place to live and do business. Concretely, Krueger proposed creation of a new international financial institution, an international sovereign debt restructuring mechanism (SDRM), either linked to the IMF or as a stand-alone entity. Her thoughts were not well received in the Global North, as any sovereign bankruptcy plan would overturn the previous global norm that financial contracts were sacred and creditors must be repaid as much as possible, if necessary by further loans to debtor countries from multilateral public financial institutions such as the IMF. Perhaps surprisingly, Krueger’s proposal for a new international organization, the SDRM, also met opposition from Latin America’s two largest economies, Brazil and Mexico. Their response was primarily about market optics: they had worked hard to obtain an investment grade rating and did not want to be brought down by association with Argentina, then in the throes of a financial and political crisis.¹¹

Global debates on preventing and responding to sovereign insolvency remain ongoing. At present, two loose coalitions of Latin American economists—many of whom rotate between senior positions with their home governments, academia, and peak multilateral or transnational organizations, depending on the political winds—are deeply involved in these discussions. On one side are the proponents of the market-based, voluntary, and minimalist solution: all new emerging market bond contracts should be written with collective action clauses (CACs), an innovation in a sovereign bond stipulating that in case of repayment problems, any rescheduling agreement that had been accepted by a pre-fixed percentage of investors, typically 60 to 70 percent, would be binding on the remainder (Helleiner 2009). The CAC solution arose in response to the waves of debt securitization kicked off by the Brady bonds, beginning in the late 1980s, and gained prominence in the decade-long early twenty-first-century saga of Argentina’s battle with the so-called “vultures,” or junk bond investors, whose business model was to purchase distressed debt and sue until the bankrupt party (originally firms, but now an entire country) yielded (Buchheit and Gulati 2017).¹² This is the preference of the Latin American Committee on Macroeconomic and Financial Issues (CLAAF, also known as the Latin American Shadow Finance Committee), composed of former senior financial and monetary officials and other experts from around the region, which puts out periodic joint position statements, as well as the global transnational Group of 30, composed of former central bank officials, including from the three largest Latin American economies.¹³ Notably, the CLAAF, although center-right within Latin American circles, sits to the ideological left of most Northern private financial actors or financial officials. For example, the CLAAF strongly supports expansion of the FLAR and other regional financial institutions.

The center-left transnational global coalition would like to move beyond the current CAC solution, which remains voluntary and case by case, to a more centralized set of procedures, overseen by an international organization or SDRM of some form, with the goal of generating more similar outcomes across diverse occurrences of sovereign default. This group includes José Antonio Ocampo (2017, 1–44, 139–80); most of the UN-affiliated economic development agencies such as ECLAC and the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G24); plus North American experts and institutions with deep Latin American ties, such as Joseph Stiglitz or the Center for Economic Policy Research (CEPR) (Guzman, Ocampo, and Stiglitz 2016; Panizza 2008).¹⁴ As contrasted to the CAC solution, which is a passive mechanism and a very simple rule, an SDRM agency would be an active advocate for improved bankruptcy proceedings, promoting research, providing assistance to debtors and creditors to facilitate equitable and similar debt reductions across cases, and offering its services as an honest broker. There are multiple design and incentive issues to debate. For example, in practice, quickly recognizing sovereign insolvency is difficult, partly because creditors are advantaged by ambiguity on this point (Canuto, Pinto, and Prasad 2014). Officials representing incumbent Latin American governments have remained on the sidelines, fearful of jeopardizing their present or future negotiating positions, leaving the field to transnational experts close to, but not currently occupying, national seats of power.

This section has analyzed how Latin American policy entrepreneurs concerned about the problems of sovereign international debt have sought to promote concrete reforms by acting both within the region and in global venues. Sometimes these policy entrepreneurs have been sufficiently successful to inspire their national governments to engage in overt actions to build permanent multilateral organizations at the regional level, as through creation of the FLAR to respond to the illiquidity problem. There have also been many less successful efforts at regional institution-building to respond to the challenges of soft currencies and short-term balance of payments problems, including the proposals for a new regional financial architecture (NRFA) pursued by the assertively leftist Bolivarian Alliance countries in the first decade of the current century (Páez Pérez 2009; Cusack 2019; Ugarteche 2021). With respect to the related problem of sovereign insolvency, regional initiatives remain primarily transnational, led by experts who are also policy entrepreneurs, sometimes working in an official capacity but more often as nonstate activists.

This paper considered the relationship between regionalism and multilateralism, drawing on the experiences of Latin America. Its argument condenses to these points. First, independent regionalism and strong global multilateralism are fundamentally complementary. Much of the angst experienced by global multilateral institutions today, and many of the criticisms directed at them, have little to do with the multilaterals’ own performance, but a lot to do with global power shifts. If the institutions of the flawed-but-valuable postwar liberal order are to endure, they need greater legitimacy with a wider set of countries, and greater openness to new mental models for policy solutions, including to problems that leaders of the Global North historically haven’t considered high priority.

Second, it has been common to dismiss regional cooperation in Latin America as quarrelsome, evanescent, and inconsequential. The paper notes some past biases in North Atlantic scholarship on regionalism. Moreover, by comparison with the very considerable formal organizational and governance achievements of the European Union, the concrete results of formal Latin American regional cooperation pale. However, this judgment misses the greater part of the iceberg, which sits below the waterline. The investigation of “regionalism” in Latin America, and perhaps in many other world regions as well, should include both formal regional international organizations (RIOs) and regionally focused activist coalitions, transnational epistemic communities, and other varieties of protoregionalism. This conceptual shift for studies of regionalism would merely parallel one that already has occurred at the worldwide level, where IR studies of formal international organizations (IOs) have been expanded to include a host of public-private, international private-private, civil society, and other varieties of purposive transnational organizing to influence international policy decisions and outcomes, collected under the rubric “global governance.”

Third, problems of sovereign bankruptcy are a good example of an issue that has long troubled the Global South more than advanced industrial countries, and that consequently has received much less attention in global financial governance forums than issues such as international money laundering, arguably less central to the daily lives of citizens in emerging market and developing countries. Latin America has long, and often painful, experience with issues of sovereign international borrowing. Latin America–focused scholars and policymakers have contributed mightily to the global intellectual debate over these issues, including by articulating the challenges confronted by soft currency countries and innovating institutions and policy ideas, addressing both sovereign illiquidity and sovereign insolvency, founded in regional conditions and debates yet with profound global relevance.

Finally, this essay does not recommend specific formal reforms allocating greater voice, votes, or decision-making authority for Latin America or other regions of the Global South (on which see Pauwelyn et al. 2022). Instead, its goal is reputational reevaluation of regional and protoregional cooperation and interest aggregation as a legitimate, innovative, and supportive force for collective problem-solving. Revising our baseline mental model of what regional cooperation is and can be, both within Latin America, at present too pessimistic about its regional achievements, and at the broader international level, where the European Union remains the inevitable comparator, would be a helpful shift. Global multilateralism, and global governance more generally, are eminently worth preserving and expanding. In service to this goal, greater open-mindedness in the central peak institutions and their champions toward independent, regionally inflected participation and advocacy can be a useful attitude for all parties.

The author thanks Jorge Heine, Barbara Fritz, Prateek Sood, Sybil Rhodes, Markus Fraundorfer, and the Special Collection editors for their very helpful comments.

The author has no competing interests to declare.

Leslie Elliott Armijo studies international relations and economic policy-making in the Global South, especially Brazil, South America, and other large emerging economies worldwide, including India. Her current research investigates comparative regionalism (South American Policy Regionalism, ed. with M. Fraundorfer and S. Rhodes, book manuscript), sovereign debt (Ethics and International Affairs, forthcoming), the financial capabilities of states (New Political Economy, 2020; Oxford Research Encyclopedia of Politics, 2020; Political Science Quarterly, 2017), and the political economy of large infrastructure projects (World Bank background paper, 2022; Policy Studies, 2017). Her most recent books are The BRICS and Financial Statecraft (2018, Oxford, with C. Roberts and S. N. Katada) and Unexpected Outcomes: How Emerging Economies Survived the Global Financial Crisis (2015, ed. with C. Wise and S. N. Katada). Dr. Armijo (PhD, University of California, Berkeley) is adjunct professor of international studies at Simon Fraser University and non-resident fellow at Boston University’s Global Development Policy Center.