Sovereign Risk and Asia

3 Credits · Level: Graduate, Undergraduate

Sovereign risk is the risk that a national government will default on its debt obligations. For most of the post-World War II era, sovereign risk was mainly a concern facing creditors to emerging market governments. However, in the wake of the global financial crisis in 2008, in some advanced countries government debt has grown to levels only previously seen in wartime while the ongoing COVID pandemic is pushing sovereign debt even higher to historical levels, a trend that has undermined the creditworthiness of governments formerly judged to be of the lowest risk. This course takes the position that deficits and debt matter, although students are welcome to challenge that view. It will provide a multifaceted view of sovereign risk, primarily through the lens of credit rating agency methodologies. It will examine the interplay of economic, institutional, fiscal, financial market and geopolitical factors that influence sovereign credit quality. It will focus on sovereign case studies and examine common features of debt crises—namely, the 1980s Latin America debt crisis which engulfed the Philippines, the 1997 Asian Financial Crisis and the effect of the 2008 Global Financial Crisis on Asian sovereigns. While the focus is on Asia, the course will examine the watershed Greek default and debt crisis of 2009-2018 and a contentious triple-A downgrade of the U.S. government in 2011. The course will also examine the recent rise of China as a major creditor to developing countries as well as the fiscal and economic effects of the COVID pandemic on the creditworthiness of advanced and developing countries. The final project for the course will be in-class oral presentations in the format of a mock sovereign credit rating committee. At the conclusion of the course, students will: (1) develop an understanding of the evolution of sovereign risk since the 1980s and rise of global bond markets, (2) be conversant on the interplay of factors influencing sovereign credit risk (3) be capable of taking a substantive opinion of relative sovereign credit quality. Grading consists of weekly, short writing assignments and the final project; class participation will be a key factor. This semester, the course will feature one guest lecturer, the head of Moody’s Investors Service Macro-Board and former director of their sovereign default analysis work. The instructor will draw on his experience gained over three decades, including as the Asia-Pacific and Middle East regional manager for Moody’s Investors Service in Singapore and as an emerging market economist at the Institute of International Finance in Washington, DC. He is currently the president and CEO of The Korea Society in New York City and he also teaches at Columbia University’s graduate School of International and Public Affairs.