Paper short abstract:

The sovereign debt crisis is at an impasse, with multilateral backstops failing. US reassertion of hegemony has brought stability, while eroding the global financial order. A complex patchwork of multi-scalar competition and collaboration is more likely to emerge than rival US and Chinese blocs.

Paper long abstract:

Covid-19 has produced a severe global economic shock. One result has been a sovereign debt crisis encompassing dozens of predominantly low- and middle-income states. Key multilateral crisis governance mechanisms- the International Monetary Fund as lender of last resort and the Paris Club as a forum for debt restructuring- have failed to adequately perform their expected backstop functions within the global financial order. One important cause has been the rise of a parallel system of Chinese development finance, only weakly connected to the incumbent US-centred regime and incompatible with many of its modalities. Concurrently, a global liquidity glut has seen a much wider range of states borrow from capital markets at commercial rates, greatly complicating restructuring processes. In response, the US has reasserted a hegemonic role through liquidity provision, relying on national institutions such as the Federal Reserve rather than multilaterals such as the IMF to bring temporary stability. I argue that these shifts represent a fraying of US-centred universalist institutions of the global economic order (a trend already observed at the WTO). US-Chinese geoeconomic competition increasingly extends to development finance in individual countries, presenting new opportunities and pitfalls for national-level actors, which I explore via examples from Sri Lanka and Ecuador. However, rather than a divergence into separate US- and China-centred financial blocs, a more likely medium term scenario may see the emergence of a patchwork of regional polarities and ad hoc configurations of private and state actors, an environment somewhat reminiscent of the turn of the 20th century.