Tensions between International Investment Protection and Financial Stability

This study is a contribution to the debate on the consistency between the measures adopted by States in the aftermath of the global financial crisis and their international investment law obligations. From 2008 onwards, States have adopted a vast array of policy tools to safeguard financial stability. These measures can be classified in three categories: crisis prevention, crisis management and crisis resolution measures. The main crisis prevention tools consist of new or revised financial regulations and prudential standards and—in certain cases—controls on capital inflows. Crisis management instruments, on the other hand, are those remedial measures deemed necessary to contain and mitigate the effects of a crisis, ultimately avoiding its worsening; they encompass financial stimulus packages and bailouts, as well as controls on capital outflows. Finally, crisis resolution tools consist of mechanisms designed to avoid insolvencies and defaults, for example through the restructuring of sovereign debt securities. In the next paragraphs we will focus on financial standards, capital controls and sovereign debt restructurings, analysing their consistency with the international investment law obligations of the host State. We will demonstrate that the interaction of trade and investment treaties greatly limits the number and scope of policy tools at States’ disposal and that a better balance should be found between investment promotion and protection and the safeguard of global financial stability. To this end, carefully drafted safeguard clauses should be included in international investment agreements (IIAs) to leave governments adequate room for manoeuvre and prevent and manage financial crises.