Sovereign debt crises have been afflicting countries, their citizens, foreign investors, the financial sector and the real economy for centuries, imposing enormous burdens on future generations. Although sovereign defaults are a structural phenomenon typical of the global economy (since the 1960, 145 governments have defaulted on their obligations), no international sovereign debt restructuring mechanism similar to domestic bankruptcy laws has ever been established and this is considered by many experts one of the most serious gaps in the international financial architecture. To overcome the inefficiency, unpredictability and inconsistency of the current legal framework, two major strategies have been identified: one based upon public international law (the so-called ‘statutory approach’) and one based on private domestic law (the so-called ‘contractual approach’). The first entails the establishment of a permanent international debt workout mechanism to resolve sovereign debt disputes in an independent and impartial manner, coordinating all creditors of a country in distress. The second promotes the adoption of strengthened contractual clauses to facilitate the restructuring of bonded debt and it was mainly conceived to avert the threat of official intervention and prevent the establishment of a sovereign debt restructuring mechanism. Initially conceived as alternatives, these strategies are actually complementary and sequential. Although the contractual approach is insufficient to tackle the inherent complexity of debt problems (as in the case of pre-defaults), it unquestionably represents a major step forward. While acknowledging that in the current scenario the market-based contractual approach is prevailing, this book aims at establishing what is the role played – and what are the limits encountered – by public international law in sovereign debt restructuring. The research will focus on State and non-State actors involved, describing the evolution of the relevant rules and institutions. Chapter one defines key concepts and provides a brief overview of the main restructuring vehicles that have been developed over time to restructure the many categories of sovereign debt. Chapter two focusses on the most important rules of public international law applicable to sovereign indebtedness, tracing a distinction between those that are relevant for debtor States (namely, State succession in respect of debts, the odious debt doctrine, sovereign immunity and economic necessity) and for creditor States (diplomatic protection and the conclusion of treaties specifically aimed at providing debt relief to a country). Chapter three describes the composition and functioning of the main debt restructuring vehicles (i.e. the Paris and London Clubs), also presenting the pros and cons of convening bondholders’ committees. Chapter four analyses in detail the law and practice of the two international organisations that are mostly involved in sovereign debt issues: the International Monetary Fund and the United Nations. Chapter five examines the increasing role played by non-State actors – in particular, financial industry associations – in the field of sovereign debt restructuring. In fact, by relying on their standard-setting and self-regulatory powers, these creditor associations are filling in some of the gaps deriving from the absence of a comprehensive framework for sovereign debt restructurings. Lastly, some caveats are necessary. Although the debt crises of Argentina (2001-2016) and Greece (2010-2018) will be often used to explain some theoretical aspects and inner workings of sovereign debt restructurings, a detailed description of the crises that struck the two countries or a full analysis of their causes do not fall within the scope of this research. Similarly, this study does not concern the European legal framework or the reform of the European economic governance which followed the Euro area debt crisis.

Sovereign Debt Restructuring: The Role and Limits of Public International Law

Viterbo Annamaria
2020-01-01

Abstract

Sovereign debt crises have been afflicting countries, their citizens, foreign investors, the financial sector and the real economy for centuries, imposing enormous burdens on future generations. Although sovereign defaults are a structural phenomenon typical of the global economy (since the 1960, 145 governments have defaulted on their obligations), no international sovereign debt restructuring mechanism similar to domestic bankruptcy laws has ever been established and this is considered by many experts one of the most serious gaps in the international financial architecture. To overcome the inefficiency, unpredictability and inconsistency of the current legal framework, two major strategies have been identified: one based upon public international law (the so-called ‘statutory approach’) and one based on private domestic law (the so-called ‘contractual approach’). The first entails the establishment of a permanent international debt workout mechanism to resolve sovereign debt disputes in an independent and impartial manner, coordinating all creditors of a country in distress. The second promotes the adoption of strengthened contractual clauses to facilitate the restructuring of bonded debt and it was mainly conceived to avert the threat of official intervention and prevent the establishment of a sovereign debt restructuring mechanism. Initially conceived as alternatives, these strategies are actually complementary and sequential. Although the contractual approach is insufficient to tackle the inherent complexity of debt problems (as in the case of pre-defaults), it unquestionably represents a major step forward. While acknowledging that in the current scenario the market-based contractual approach is prevailing, this book aims at establishing what is the role played – and what are the limits encountered – by public international law in sovereign debt restructuring. The research will focus on State and non-State actors involved, describing the evolution of the relevant rules and institutions. Chapter one defines key concepts and provides a brief overview of the main restructuring vehicles that have been developed over time to restructure the many categories of sovereign debt. Chapter two focusses on the most important rules of public international law applicable to sovereign indebtedness, tracing a distinction between those that are relevant for debtor States (namely, State succession in respect of debts, the odious debt doctrine, sovereign immunity and economic necessity) and for creditor States (diplomatic protection and the conclusion of treaties specifically aimed at providing debt relief to a country). Chapter three describes the composition and functioning of the main debt restructuring vehicles (i.e. the Paris and London Clubs), also presenting the pros and cons of convening bondholders’ committees. Chapter four analyses in detail the law and practice of the two international organisations that are mostly involved in sovereign debt issues: the International Monetary Fund and the United Nations. Chapter five examines the increasing role played by non-State actors – in particular, financial industry associations – in the field of sovereign debt restructuring. In fact, by relying on their standard-setting and self-regulatory powers, these creditor associations are filling in some of the gaps deriving from the absence of a comprehensive framework for sovereign debt restructurings. Lastly, some caveats are necessary. Although the debt crises of Argentina (2001-2016) and Greece (2010-2018) will be often used to explain some theoretical aspects and inner workings of sovereign debt restructurings, a detailed description of the crises that struck the two countries or a full analysis of their causes do not fall within the scope of this research. Similarly, this study does not concern the European legal framework or the reform of the European economic governance which followed the Euro area debt crisis.
2020
Giappichelli
CIDOIE
24
1
260
978-88-921-3388-4
978-88-921-8796-2
sovereign debt, succession, immunity, necessity, diplomatic protection, odious debt, IMF, United Nations
Viterbo Annamaria
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2318/1740353
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