Third World debt grew very rapidly in the 1970s. Many states, faced with sharply higher costs for energy and manufactured imports, borrowed aggressively in unregulated offshore capital markets. But what constrains sovereign states to repay this debt to commercial banks? Creditors do not turn to their home states to enforce payment; rather, the supervision of sovereign debt is largely a function of commercial banking arrangements, especially lenders' syndicates, and the International Monetary Fund's conditional lending. This political structure, which involves unified private sanctions, has ensured that no state defaults unless it is insolvent or is willing to accept a radical rupture in its international commercial relationships. When the problem is insolvency, creditors routinely convene ad hoc conferences. In conjunction with an IMFapproved stabilization program, creditors can renegotiate debt-service schedules and provide new financing if necessary. These arrangements are distinctive among international economic regimes because they rely on nonstate actors as the primary source of rules, norms, and procedures.
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