Bretton Woods, Vulture Funds, and an International Bankruptcy Court: The Past, Present, and Future of Sovereign Debt Law
Nicholas Langenberg is a J.D. candidate at Michigan State University College of Law. He currently serves as the Executive Editor of the Michigan State Law Review, and he will be participating in the Duberstein Bankruptcy Moot Court competition in Spring of 2025.
Introduction
Today, many entities enjoy the benefit of planning and implementing their pursuits against a backdrop of reassurances provided by the United States bankruptcy code.[1] That transformative legal scheme has helped foster prosperity in the United States and throughout the world by granting assurances to both borrowers and lenders.[2] To borrowers, the bankruptcy code promises a solution if they are unable to pay their debts. After having worked towards debt repayment for a set period of time, the court-ordered bankruptcy plan will be discharged and the cloud of debt will no longer hang over the borrower’s head.[3] To lenders, the bankruptcy code guarantees that if a borrower cannot repay their debts, there will be an orderly and efficient process to determine how the borrower’s assets will be distributed.[4]During that process, each of the borrower’s creditors will be forced to come to the table with their claims, and no lender will be able to hold out and try to claim the full value of their debt. [5] Instead, every lender will take a haircut, but in this way, every lender will also be protected from being left unable to collect any amount at all on the loan they made.[6]
Because of these assurances, lending and borrowing in the United States are predictable activities.[7] Entities borrow freely and take risks freely, knowing that, to some extent, they are protected from the danger of perpetual indebtedness.[8] Similarly, lenders make loans with ease, knowing that the bankruptcy scheme will help them recover some of the money they have lent out, even if the borrower happens to default on their payments.[9] The system fosters both growth and confidence, and although it has flaws, it is generally regarded as a fair way to balance the interests of both borrowers and lenders.[10]
Unfortunately, on the level of international law, there is no similar scheme for handling issues of insolvency.[11]All the benefits that are provided to entities in the United States and other similar jurisdictions are lacking on the international level, which leads to uncertainty, inefficiency, and barriers to growth.[12] In response to this reality, the World Bank and the United Nations Commission on International Trade Law (UNCITRAL) have promulgated standards titled the “Principles of Effective Insolvency and Creditor/Debtor Relations.”[13] These standards seek to guide nations towards adopting a uniform bankruptcy code that would operate on the level of international law. At this time, though, the differences between the bankruptcy laws operating in different nations remain considerable.[14]
Moreover, even if there were an international bankruptcy code that existed along the lines suggested by the World Bank and UNCITRAL, it would only apply to non-state entities.[15] For sovereign governments, there simply is no legal option available that would allow the government to escape from debts that they cannot afford to pay.[16] This means that all the positive effects provided by a well-structured bankruptcy code—efficiency, fairness, predictability, safe environments for borrowing and lending, and the hope for a fresh start—are lacking in the world of sovereign finance.[17]Additionally, it means that people in nations such as Indonesia, Zimbabwe, and the Democratic Republic of the Congo are forced to pay back loans that were taken out by leaders who never used the loan proceeds to help their nation grow because the majority of the funds were embezzled away.[18] In recent years, there have been renewed calls to forgive such sovereign debts, along with those of the most highly indebted poor countries (HIPCs).[19]
However, random, ad hoc loan forgiveness for the poorest nations of the world is not an ideal solution to the problems posed by modern sovereign debt relations.[20] Not only does such a solution create uncertainty for both borrowers and lenders, but it also does too little to address the scope of the problem.[21] Today, sixty percent of low-income nations in the world are at risk of defaulting on their debts.[22] The World Bank has recently warned of “disorderly defaults” that might occur as the poorest nations of the world attempt to repay the additional loans they took out to weather the storm caused by the COVID-19 pandemic.[23] Many experts fear that the economic fallout of poor nations being unable to make their loan payments could ripple throughout the world.[24]
Ad hoc loan forgiveness on a case-by-case basis cannot address the scale of that problem.[25] Rather, the solution that is required is the creation of an international bankruptcy tribunal.[26] Only such a tribunal—vested with jurisdiction over debt relationships involving sovereign nations and guided by the principles set forth by the World Bank and UNCITRAL—could strike the right balance between creditors’ interests and debtors’ realities.[27] To be successful, though, the tribunal would need to be perceived as legitimate by both capital-exporting and capital-importing nations, and it would need to operate independently of the World Bank and the International Monetary Fund (IMF).[28]
This Article explores the possibilities of creating such a tribunal. It begins, in Part I, by tracing the history of modern sovereign debt relations that originated with Bretton Woods and the creation of the World Bank and the IMF.[29]Part II then explores the forces that are presently shaping discourses and laws regarding sovereign debt.[30] Finally, Part III discusses the principles of international law that support the creation of a sovereign debt tribunal.[31]
I. The History of Sovereign Debt Law
The modern global economy has been shaped more than anything else by the events that took place near the end of World War II.[32] It was at that time that the two most influential policymakers in today’s sovereign debt legal landscape—the IMF and the World Bank—came into existence.[33] In the years since their inception, though, the political and economic landscape of the world has transformed in significant ways.[34]
A. Sovereign Lending After World War II
In July 1944, delegates from forty-four nations met in Bretton Woods, New Hampshire, to determine the future of the world’s international monetary relations.[35] The group was especially concerned about preventing a return to the pre-war, Depression economy.[36] They wanted to avoid the mistakes that had taken place after World War I, primarily restrictive trade policies and competitive devaluations.[37] Moreover, they wanted a system that was not unnecessarily rigid and that could adjust to a rapidly changing world.[38]
To achieve all of this, they created two institutions: the IMF and the World Bank.[39] The IMF’s primary purpose was to create stability in the international financial system, and the primary way in which it was to do so was through moneylending and policy promulgation.[40] To ensure its success at both functions, the IMF was imbued with funds that it could lend out to member states as needed.[41] These funds made membership attractive. To become a member, though, a nation needed to agree with the IMF’s terms and pay a quota based on a percentage of its GDP.[42] These quota payments also determined each member nation’s voting power, which was determined by that nation’s overall financial contribution.[43] Because that policy has never changed, today, twenty-two of the 184 IMF member nations command sixty percent of the votes that determine IMF policy.[44]
The creation of the IMF occupied most of the attention at Bretton Woods.[45] In comparison, the creation of the World Bank was almost an afterthought.[46] In the last few days of the conference, the commission assigned to contemplate the creation of a world bank did the majority of its work and asked John Maynard Keynes to draft its articles of agreement.[47] The official purpose of the World Bank was to rebuild the economies of nations that were devastated by the war and to improve the economic situation in poor nations.[48] Initially, the World Bank stuck to its mandate by issuing loans to France and other countries whose economies had been decimated.[49] After the Marshall Plan began to be implemented, though, the World Bank pivoted and began to primarily fund infrastructure projects, focusing primarily on energy, irrigation, and transportation in developing nations.[50]
In the years that followed the creation of the World Bank and the IMF, two other institutions arose that have played a major role in shaping modern sovereign debt law.[51] The first of these organizations—which came to be known as the “Paris Club”—consists of creditor governments who share similar concerns about sovereign borrowers.[52] The Paris Club meets annually at the French Treasury, where it discusses issues that arise in relation to bilateral sovereign debts.[53] The second institution that arose—which has come to be known as the “London Club”—is similar to the Paris Club, except that it consists not of creditor governments, but of large creditor banks.[54] The members of the London Club meet for the same purposes that the members of the Paris Club meet: to discuss their concerns regarding sovereign debt borrowers.[55]
The debts that concern both the Paris Club and the London Club are different from the debts owed to the IMF because they arise from bilateral contracts rather than from non-bilateral agreements, such as Memoranda of Understanding (MoU) or Letters of Intent.[56] In negotiating these bilateral contracts, borrower nations usually do not command the same sort of power at the bargaining table that is commanded by large banks and creditor governments; thus, they often have less say in the terms that are implemented into the contract that establishes the debt.[57] Therefore, it is most common for the choice of law provision in the contract to state that either New York or London law will govern the debt, although the debtor nation is sometimes able to negotiate for the laws of their nation to govern.[58]
B. The Debt Crises of the 1980s
In the early 1980s, falling commodity prices and high U.S. interest rates made it difficult for HIPCs to make payments on their debts, which usually had to be repaid in U.S. currency.[59] Many of these debts were owed to either America or to American creditors, and many of the borrowers of these debts were nations located in either Central or South America.[60] To address this problem, the U.S. Secretary of the Treasury, James A. Baker, put forward a plan (the “Baker Plan”) that called for U.S. creditors to make additional loans to these nations in exchange for agreements that the borrower nations would make neo-liberal reforms to their economic policies.[61] With no other choice, many nations decided to take the loans and make the required changes to their nation’s policies.[62] However, the loans were largely just a temporary fix; after taking the additional loans, the nations were able to stay solvent, but they were more heavily indebted than they had been previously.[63]
To address this problem, the next US Secretary of the Treasury, Nicholas Brady, advanced his own proposal.[64]This plan differed from the Baker Plan in several key ways.[65] First, it relied more heavily on the IMF and the World Bank.[66] Second, it made one of its central goals the reduction of debt owed by sovereign nations.[67] And finally, it sought to achieve debt reduction in novel ways, such as by asking the IMF, the World Bank, and private lenders to restructure the debt or to participate in debt-equity schemes that would allow the debtor nations to exchange assets (such as land) for reductions in the debts they owed.[68] It also sought to reduce the debts of borrower nations by converting the loans they carried into securities bonds.[69]
Both these ways clearing of old debts—which really were just ways of replacing old debts with new obligations—allowed nations that had previously been unable to receive credit to once again appear credit-worthy on paper.[70] In response, foreign capital poured into the borrower nations.[71] However, there is no evidence that debtor nations were better off after participating in the Brady Initiative.[72] In fact, many commentators suggest that the combined effects of structural adjustment programs, the selling-off of government assets, and the privatization of utilities and other companies left most debtor nations in a worse cash-flow situation than they had been in before their involvement in the debt reduction scheme.[73]
C. The Bailouts of the 1990s
The conditions that led to the implementation of the Baker Plan and the Brady Initiative in Central and South America also began to develop in other parts of the world in the early 1990s.[74] In particular, the nations of Indonesia, Pakistan, Russia, South Korea, Thailand, Ukraine, and Venezuela began to experience currency crises.[75] These crises can be largely attributed to the floating currency exchange rates that were implemented in 1971.[76] Because the exchange rates were not fixed to any standard—such as gold—poor countries often experienced rapid and unpredictable fluctuations in the value of their currency.[77] These fluctuations were exacerbated by the boom-and-bust investment waves caused by foreign investors who attempted to make short-term gains by predicting rises and falls in the values of different currencies.[78] They also led to the depletion of foreign currency reserves in many low-income nations.[79]
Just as the United States responded to the financial crises in Central and South America by loaning more money and pressing for structural adjustments, the IMF responded to the currency crises of the 1990s by making more short-term loans and insisting upon the implementation of austerity programs.[80] The IMF also insisted that countries adopt deregulation programs to receive more aid.[81] Again, many countries—such as Argentina—suffered financially as a result of such deregulation, leaving them in an even worse position to make payments on their debts than they had been in previously.[82]
D. The Policy Shifts of the 2000s
During the 1980s and 1990s, the IMF’s main response to a nation’s inability to pay its debts was to offer short-term loans in exchange for structural adjustments.[83] Beginning in the early 2000s, however, there was a shift away from such heavy reliance on bailouts.[84] Argentina exemplifies this point.[85] Before 2001, the IMF had been supplying Argentina with regular short-term loans.[86] In 2001, though, Argentina failed to achieve some of the budget deficit goals that had been imposed upon it when it had received a previous bailout.[87] In response, the IMF refused to issue any additional funds.[88]
Without the liquidity it had previously relied on to make its payments, Argentina was faced with the reality that it was likely to default on its debts.[89] Therefore, it began attempting to negotiate with its creditors, in the hopes of achieving a solution that would allow it to repay the majority of the debt it owed to each of its creditors.[90] The process it relied upon to do so is similar to the process recommended by the United Nations to international corporations that are at risk of defaulting on their debts.[91] However, the sheer volume and complexity of the Argentine debt made any negotiations incredibly difficult.[92] Thus, Argentina placed a temporary moratorium on principal and interest payments.[93]
Facing an unprecedented situation, many of the banks that served as creditors to Argentina desired to rid themselves of the Argentine debt.[94] In response, some private hedge funds—subsequently labeled “vulture funds”—swept in to purchase the debts at a fraction of their face value.[95] After purchasing the debts, though, the vulture funds deviated from the policies that were typically employed by the members of the London Club.[96] Rather than settling for a reduction of the value of the debt, these funds demanded full repayment, and they began suing Argentina in US courts to receive judgments for the full value of the debts they now owned.[97]
E. The Eurozone Crises of the 2010s
In 2008, a number of coinciding events led to a global financial crisis.[98] One of the most significant of these was the shift that had occurred in the practices of mortgage lenders over the prior two decades.[99] Beginning in the 1990s, mortgage lenders had begun to securitize mortgages at an unprecedented rate.[100] The securitization of loans—and the corresponding pooling of those loans into one large asset portfolio—allowed the mortgage lending world to convince itself that risky assets were actually quite safe.[101] Because these pooled mortgages were often based on loans made to subprime borrowers and because they employed adjustable rates, they were extremely likely to go unpaid in the event of an economic downturn.[102] Moreover, because they were packaged and sold as investments, investors all over the world were exposed to the same risks.[103] Thus, when the downturn did occur, it affected financial markets all across the globe.[104]
While some nations were able to bear the shock of the recession that followed, many were not.[105] In particular, a number of small Eurozone nations—such as Greece, Spain, Portugal, and Ireland—found themselves unable to keep making payments on their debts.[106] Those countries of the European Union (EU) that had the means to weather the storm agreed to bail out the smaller nations that were struggling, but in return, they demanded the smaller nations sign MoU stating that the nations being bailed out would implement strict austerity measures.[107] These austerity measures were incredibly unpopular in the nations that were forced to sign them, and in the wake of their passage, angry conversations about creditors’ interference with national sovereignty began to spring up with sudden fervor both within and beyond the borders of the nations in which they were implemented.[108]
F. The Economic Impact of COVID-19
Over the past five years, the economic threats posed by the COVID-19 pandemic have revealed the untenable nature of the present state of sovereign debt relations amongst rich and poor nations.[109] The pandemic dealt a significant blow to the economies of many HIPCs, and it caused over one hundred nations to request emergency financial assistance from the IMF.[110] To address the crisis, the Group of Twenty (G-20) passed the Debt Service Suspension Initiative (DSSI) and the Common Framework for Debt Treatment Beyond the DSSI (the Common Framework).[111]However, neither the DSSI nor the Common Framework resulted in any significant reduction to the overall debt burdens of HIPCs.[112] Instead, these initiatives mainly offered temporary relief. Still, the fact that it was necessary to pass such relief in order to avoid imminent global financial crisis shows that something more must be done to resolve the high debt burdens carried by the poorest nations of the world.[113]
The sovereign debt landscape at the end of the first quarter of the twenty-first century is one that is riddled with landmines. It has now been over a decade since the Eurozone crises began, but it is still far from certain how they will be resolved.[114] Meanwhile, the economic shock caused by the COVID-19 pandemic has swelled the debts owed by the poorest nations around the world.[115] And neither the IMF nor the World Bank seem eager to return to the bailout-intensive policies of the 1980s and 1990s.[116] The present state of affairs is not at all sustainable, and knowledge of this fact has caused many groups around the world to begin demanding a change in the international legal scheme that shapes modern sovereign debt relations.[117]
II. The Forces Presently Shaping Sovereign Debt Law
Today, the legal environment of sovereign debt laws is being shaped by a variety of different forces.[118] The IMF, of course, is one of those forces.[119] But other political and legal factors—such as the changes that have taken place in international investment law, the contractual nature of most sovereign debt, and a growing awareness that HIPCs are still being forced to make payments they cannot afford—are shaping the world of sovereign debt as well.[120]
A. The IMF
Since the early 2000s, the IMF has been undergoing an identity transformation.[121] This transformation began in the late 1990s, when many nations around the world began questioning the IMFs legitimacy.[122] The questions about legitimacy arose following the IMF’s involvement in the Asian Financial crisis.[123] Beginning after that crisis, many commentators became more vocal about the fact that nations that participated in IMF programs had not subsequently experienced economic growth.[124] Others pointed out that the IMF was extremely resented amongst the majority of the populace in nations that had participated in its programs and that there was a lack of options for meaningful participation in IMF decision‑making for the majority of its member nations.[125] These facts have caused commentators to refer to a “legitimacy gap”—that is, a gap between the IMF’s claimed legitimacy and its perceived legitimacy amongst the majority of its member states.[126]
In response to this crisis of legitimacy, the IMF has begun implementing reforms that will address the concerns expressed by critics.[127] One of those reforms was the proposal to create a sovereign debt dispute resolution forum.[128]This proposal aimed to address concerns about the IMF’s perceived bias in favor of rich nations.[129] It offered to base the new tribunal’s main office in a location other than Washington, D.C., and it suggested that the IMF’s role would be more like that of a mediator, bringing all of a nation’s debts together for consideration and presenting a comprehensive restructuring plan to all of its lenders.[130] However, the plan did not please almost any of the member states.[131] It came under criticism partly because it exempted IMF debts and also because it did not clearly indicate that the problems debtor countries had experienced with the IMF in the 1980s and 1990s would be overcome by the plan.[132]
In 2013, the Brookings Institution published its own plan for a sovereign debt restructuring mechanism (SDRM) that they called the Sovereign Debt Adjustment Facility (SDAF).[133] This plan incorporated the lessons that had been learned during the past decade—especially those regarding Argentina’s experiences with the vulture hedge funds—and it made two proposals, one of which was designed to appeal to creditors and one of which was designed to appeal to debtors.[134] The first proposal asked the IMF to commit to not bailing out nations with unsustainable debt burdens unless the nation agreed to restructure its economy.[135] The second proposal suggested using the power of the IMF to protect nations participating in restructuring from holdout creditors (such as the vulture funds).[136] Notably, though, the proposal lacked any of the safeguards that are present in traditional bankruptcy proceedings: automatic stays on litigation, a mechanism to truly bind all creditors, the creation of a tribunal that would have the authority to mandate the bankruptcy plan, and the promise of a fresh start.[137]
B. The Contractual Nature of Sovereign Debt
Another factor that heavily shapes the current state of sovereign debt law is the contractual nature of sovereign debts.[138] For the most part, sovereign debt law is shaped by bilateral investment treaties (BITs).[139] Today, there are about three thousand such treaties, and the terms of those treaties determine rights that are afforded to both creditors and borrower nations.[140] Typically, these treaties grant foreign creditors the right to take a borrowing nation to arbitration and to claim damages for treaty violations.[141] They may also contain pari passu clauses, which require sovereign debtors to place each of their creditors on equal footing and to repay them each in a like manner.[142]
Argentina experienced the effects of those treaty provisions when the vulture funds began filing suits against it in US courts to secure judgments for the full amounts of the loans they had acquired.[143] The actions of vulture funds were perceived by virtually everyone—except, of course, the funds themselves—as being detrimental.[144] Both the London Club and the Paris Club were accustomed to settling issues regarding borrower nations’ inability to pay amongst themselves.[145] However, the actions of the vulture hedge funds deviated from this approach and cast a dark shadow over the IMF, which many observers perceived to be playing a role in the creation of Argentina’s problems.[146] Partly because of the harm caused by the vulture hedge funds, many economists began, in the wake of the Argentine crisis, to call for sovereign debt contracts to be rewritten to include Collective Action Clauses (CACs) and majority modification provisions.[147] Such clauses would allow a majority of a nation’s creditors to agree to restructure the debt in a way that would become binding on all other creditors.[148]
In effect, the CACs act as a form of cramdown mechanism, forcing holdout creditors to come to the table, even against their will if necessary.[149] Because there is not currently any form of an international bankruptcy court, the CACs have become one of the most powerful tools for allowing creditors and debtor nations to find a way to restructure a nation’s debt that will allow that nation to continue making payments.[150] However, they are of limited use in situations where a HIPC experiences an economic shock and is entirely unable to pay.[151] In those situations, the default solution continues to be to turn to the IMF to request additional funds in exchange for some sort of restructuring.[152]
C. The Odious Debt Doctrine
In recent years, the concept of Odious Debt has made a resurgence in public discourse.[153] This concept—which suggests that debts taken out on behalf of a nation that are not used for the benefit of that nation’s people—ought not be considered legitimate.[154] The concept, though, has an ironic history, one that can be traced back to the Spanish-American war.[155]
After the Spanish-American war, Spain insisted that the United States assume Cuba’s debt as part of taking over control of Cuba.[156] The United States, however, insisted that the Debt did not need to be repaid to anyone, primarily because it was used not for the benefit of the Cuban people, but for their repression.[157] Commentators have pointed out that this is a problematic position for the United States to have held, but the language nonetheless stuck, and it was soon extended to other situations.[158] In 1923, Former President William Howard Taft sat as the sole arbiter over a dispute between Costa Rica and the Royal Bank of Canada.[159] Costa Rica insisted that it should not have to pay back the loans it had borrowed from the Royal Bank of Canada because they were taken out by the dictatorial Frederico Tinoco regime and they were not used to benefit the people of Costa Rica.[160] Surprisingly, Taft agreed, stating that the bank should have been on noticed that the loan proceeds were not going to be used for legitimate government purposes.[161]
The ironic aspect of the US being the original advocate of the odious debt doctrine is that in the following decades, the US would use loans to prop up dictatorial regimes in countries all over the world.[162] For example, soon after the Tinoco arbitration was resolved, the US began making loans to the Machado regime in Cuba.[163] Many of these loans were undoubtedly not for the benefit of the Cuban people, and yet they were nonetheless regarded by the US as legitimate loans, in need of repayment.[164] Moreover, in the years that followed, the US used loan proceeds to prop up the governments of dictators that were friendly to its interests all over the world, such as in Nicaragua, Guatemala, and Chile.[165]
The problem, of course, is that the US has never considered these debts to be illegitimate, even though their proceeds were never used to benefit the people who were left repaying them.[166] At the same time, the US has invoked the notion of odious debts to argue that Iraq’s debts ought to be forgiven, most likely because it was in the interest of American investors for them to be forgiven quickly after the Iraq war.[167] This has caused the doctrine of odious debt to appear to be inconsistent, arbitrary, and primarily a tool for wealthy nations to use when it benefits them to do so.[168]Others, however, have argued that the doctrine of odious debts ought to be extended to the debts of many HIPCs, especially those in which large portions of the loan proceeds were embezzled by dictators.[169] And some—such as economist Sanjay Reddy—have suggested that while the doctrine of odious debts points toward a core truth, it is too blunt an instrument to be used to address most types of debt that might be considered “odious.”[170] Instead, Reddy advocates a form of “modified debt contract,” which would allow an arbiter to determine how much benefit the loan actually provided to the nation and to demand repayment of that amount plus interest—but no more.[171]
D. International Investment Law
Today, the rules that govern sovereign debt are primarily shaped by international investment law, which is, in turn, primarily shaped by international treaties.[172] The majority of the treaties influencing sovereign debt law are BITs.[173]As previously mentioned, there are currently about three thousand BITs in effect.[174] These BITs shape the contours of sovereign debt law in ways that are usually quite predictable: They often stipulate that creditors from capital-exporting nations will be given most-favored-nation status; they typically stipulate that New York or London law will govern the terms of the contract; and they often contain pari passu provisions requiring that each creditor is repaid in equal step with each other creditor.[175]
However, these BITs also grant jurisdiction over disputes regarding sovereign debt to international investment law tribunals.[176] Therefore, it is easy to conceive of an international investment tribunal being erected as a bankruptcy court based upon the jurisdiction granted by these BITs.[177] Such a tribunal would operate in accordance with the principles of UN Resolution 69/319: “Basic Principles on Sovereign Debt Restructuring Processes,” while also incorporating the fresh-start element of traditional bankruptcy law.[178]
E. Political Pressures to Reform Sovereign Debt Law
In recent years, there has been increased political pressure to reform the laws that govern sovereign debt.[179] For example, the Jubilee 2000 movement has become active in sixty-nine nations.[180] This interfaith movement—which has the primary goal of eliminating sovereign debt for all HIPCs—presented a petition to the United Nations in September 2000.[181] The petition was signed by 24 million people, and it called on the United Nations to take action aimed at canceling the sovereign debts of the poorest countries.[182]
While the Jubilee 2000 movement was reflective of grassroots political efforts aimed at eliminating the sovereign debts of HIPCs, the governments of many nations have also taken actions aimed at achieving progress on this front.[183]For example, in 2014, the Group of 77 and China (the G-77) presented to the UN General Assembly document A/68/L.57/Rev.1: “Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes.”[184] While presenting this document, Sacha Sergio Llorenti Solíz—the representative from Bolivia who was selected for the role—praised the “genuine commitment to building an international financial system in which the rules are fair and favorable towards development” that he had seen displayed by the UN General Assembly, and his words seem to have not been entirely lip service.[185] In recent years, the UN has signaled strong support for the creation of a sovereign debt tribunal.[186] For example, in 2011, speakers at the UN Conference on Trade and Development called for the development of such a tribunal.[187] And in 2015, the UN adopted Resolution 69/319: “Basic Principles on Sovereign Debt Restructuring Processes.”[188] Notably, such signals of support make no mention of the IMF.[189]
The various legal and political forces that shape sovereign debt laws currently swirl around one another in a chaotic void.[190] Without any central, governing body, they clash in ways that are unproductive and unpredictable.[191]Meanwhile—while those forces and interests compete with one another outside of a centralized debt-restructuring legal scheme—the leaders of many nations are being forced to make difficult decisions about how to best make their debt payments while also caring for the needs of their people.[192] This reality is causing cries to rise in both capital-exporting and capital-importing nations, demanding something different be done regarding sovereign debt relations.[193] The wisest and most effective response to those cries would be to create an international bankruptcy tribunal.[194]
III. The Future of Sovereign Debt Law
The time has come for an international bankruptcy tribunal that would have jurisdiction over all sovereign debt relationships and that could offer the world all the benefits of a well-structured bankruptcy scheme.[195] Such a tribunal is necessary to address the financial crises the world is currently facing, and it is legally possible because of the developments that have taken place within international law over the past several decades.[196] However, to be successful, the movement to create such a tribunal must assure capital-exporting nations that it is in their interests to consent to the tribunal’s jurisdiction, and it must assure capital-importing nations that it will operate in accordance with principles of fairness and equity.[197] Such a feat is no easy task, but failing to try would be a reprehensible moral failure given the present reality that many sovereign debtors around the world are facing.[198]
A. The Need for an International Bankruptcy Tribunal
Currently, there is no meaningful way for sovereign debtors and their creditors to address the problems that arise in every lender-borrower relationship.[199] As the experiences in Argentina and Greece reveal, any attempt that a sovereign nation might take to modify its debts necessarily proceeds ad hoc.[200] Of course, CACs are helping to address the ad hoc nature of debt negotiations by forcing all creditors, including vulture funds, to come to the table, but those CACs do not address many of the other problems that remain in sovereign debt disputes.[201] In particular, CACs do not address issues regarding the odious nature of many sovereign debts that were incurred by dictators who subsequently embezzled loan proceeds or used them to oppress their own people.[202] Moreover, CACs do not provide a nation with the type of “fresh start” that is provided by traditional bankruptcy proceedings.”[203] They do not do anything to address the dysfunctional and inefficient manner in which sovereign debt disputes are resolved.[204] And they do not help resolve the legitimacy crises that are currently facing the IMF (which many debtor nations—correctly or incorrectly—regard as the force behind the difficulties they are facing in managing their ballooning debts).[205]
A bankruptcy tribunal that operates on the level of international law would solve all of these problems.[206] Such a tribunal would not only allow for a fresh start, but it would also allow for all of the other advantages that come with traditional bankruptcy.[207] For creditors, the presence of a bankruptcy tribunal would lead to desirable goals, especially greater predictability and efficiency in terms of the resolution of sovereign debt disputes.[208] And for borrowers, such a tribunal would offer the hope that truly untenable debts would be reduced, allowing the nation to achieve whatever sort of fresh start is necessary to allow for a meaningful chance at a productive future.[209]
Of course, there are unique problems associated with the creation of such a tribunal.[210] After all, sovereign nations are not the same as debtor corporations or debtor individuals.[211] They rarely keep the majority of their assets in foreign jurisdictions, and even if they did, humanitarian rights concerns would prohibit an international bankruptcy tribunal from seizing the majority of those assets.[212] However, in other ways, a sovereign nation is very similar to a corporation, especially in the sense that its income-generating potential can be assessed and repayment can be based upon that potential.[213] A bankruptcy tribunal with the authority to consider that income-generating potential, would be in a position to ensure greater equity than is currently possible through either IMF intervention or ad hoc renegotiation of liabilities.[214]
B. The Principles of International Law that Support a Bankruptcy Tribunal
One of the first suggestions often mentioned when considering the creation of a bankruptcy tribunal that would operate on the level of international law is that the IMF could easily function as such a tribunal.[215] However, because of the IMF’s bias towards the wealthy nations of the world —whether real (and likely caused by its structure) or imagined—it is, in fact, ill-suited to operate in this capacity.[216] A much better solution would be to create a tribunal, set up through the auspices of the U.N. Secretary General, that derives its authority from treaties.[217]
One example of a treaty that could be interpreted as providing the basis for such jurisdiction is the Vienna Convention of Succession of States in Respect of State Property.[218] While the stated subject matter of this treaty is not primarily sovereign debts issued under bilateral investment treaties, its content—debts owed by sovereign nations that have been succeeded by other nations—does apply to all situations in which a former nation has been succeeded by a new nation.[219] Moreover, it grants the ICJ jurisdiction to determine disputes that arise with respect to such debts.[220]Because the most odious of debts are often issued in unstable nations, this doctrine could provide the means for the ICJ to eliminate odious debts in some circumstances.[221]
However, in the long run, something similar to the third UN Convention on the Law of the Sea (UNCLOS III) will be required to truly address the problems posed by sovereign debts.[222] That convention attempted to create a tribunal separate from the ICJ that would have jurisdiction over disputes arising under the UNCLOS III.[223] The problem, though, is that the UNCLOS III pushed the limits on what was deemed to be acceptable to the wealthiest nations (such as the US) in terms of how profits were to be shared from deep-sea-bed mining.[224] As a result, the US has not yet ratified the treaty granting jurisdiction to the newly created tribunal.[225] This lesson offers helpful insights that must be incorporated into any attempts to create an international bankruptcy tribunal.[226]
It ought to be noted, though, that some commentators have suggested that the ICJ already has jurisdiction over sovereign debt disputes involving especially burdened HIPCs.[227] These commentators suggest that the ICJ has jurisdiction over the debt disputes of especially poor nations because forcing these nations to pay their debts violates jus cogens norms pertaining to human rights.[228] According to this view, forcing these nations to make payments on their debts causes them to choose between paying for the basic goods their citizens require—hospitals, infrastructure, and so on—and making loan payments that they cannot possibly afford.[229] Because such deprivations are said to violate jus cogens norms, the ICJ is also said to have universal jurisdiction over these claims.[230] In 2008, the World Bank issued a discussion paper rejecting this notion, but the fact that it needed to do so—and the fact that the response to the paper was vigorous—suggests that there is considerable interest in this idea.[231] It is possible that, in the ensuing decades, a consensus will build around the idea that forcing HIPCs to make loan payments they cannot afford does, in fact, violate jus cogens.[232] If so, however, that day is still far in the future.[233]
C. The Legitimacy of an International Bankruptcy Tribunal
Given that there is not currently a consensus regarding whether it is a violation of jus cogens to force HIPCs to make loan payments—and considering that, even if there was, the ICJ’s jurisdiction would only then apply to disputes involving the poorest countries of the world—it seems clear that the jurisdiction of an international bankruptcy tribunal cannot be based on the universal jurisdiction it possesses to address violations of jus cogens norms; instead, it must be based on consent granted in a convention.[234] Therefore, it is necessary to convince both the sovereign creditors and the sovereign debtors of the world that it is in their interest to participate in such a convention.[235] To do so, two things must be established: (1), that the tribunal is legitimate; and (2), that it can achieve desirable goals for all the nations involved.[236]
The concerns about legitimacy cannot be addressed without considering the lack of legitimacy that currently plagues the IMF and the World Bank.[237] This lack of legitimacy undermines the efforts that these institutions have made to address some of the most crucial problems facing the world today.[238] If it is to succeed at arbitrating sovereign debt disputes in a way that is acceptable to all parties, an international bankruptcy tribunal must succeed where the IMF and the World Bank have failed.[239] To do so, the tribunal must establish three forms of legitimacy: establishment legitimacy; procedural legitimacy; and substantive legitimacy.[240]
Establishment legitimacy concerns state consent, democratic legitimation, participatory legitimation, and the participation of experts.[241] The ICJ currently commands many of these forms of legitimacy precisely because it is a tribunal made up of jurists from many different nations.[242] If the international bankruptcy tribunal is built upon a model such as that set forth by the ICJ, it will be considerably more successful at achieving these types of legitimacy than it would otherwise be.[243]
Procedural legitimacy concerns participation, ownership, comprehensiveness, transparency, reason giving, efficiency, and review.[244] The most important thing an international bankruptcy tribunal must do in order to achieve these types of legitimacy is to not repeat the mistakes that have been made by the IMF and the World Bank.[245] If the tribunal takes pains to explain its holdings and to insulate itself from political pressures, its decisions will likely be perceived as much more legitimate than similar decisions reached by the IMF.[246]
Finally, substantive legitimacy concerns economic and financial results, human impact, and consistency across cases.[247] These concerns are the most difficult to address adequately precisely because the interests of the parties who must consent to the jurisdiction of the tribunal—the sovereign debtors and sovereign creditors—are in tension with one another.[248] However, because of this, they are actually intertwined with the concerns that will cause these notions to submit to the tribunal’s arbitration in the first place.[249] Therefore, if the tribunal is able to persuade both creditor and debtor nations that it is able to achieve goals that are desirable for both sets of nations, it will have already taken significant steps towards achieving legitimacy in this third area.[250]
To successfully persuade both creditor and debtor nations to consent to its jurisdiction, the tribunal must first and foremost be clear about the criteria it will use in reaching decisions in disputes.[251] It must be expressed that the goal of the tribunal is not the eradication of sovereign debts held by HIPCs, but simply the assurance of predictability and efficiency in sovereign debt disputes.[252] That assurance can be provided by establishing clearly the factors that ought to be considered when a debt is being restructured: how much benefit the populace gained from the loan; whether the sovereign debtor actually has the means to continue making payments; and whether doing so will prohibit growth and development in that nation.[253]
Another factor that may cause capital-exporting nations to support the idea of an international bankruptcy tribunal is the fact that many large banks located in those countries took big losses when Argentina defaulted on its debt.[254]Without an official bankruptcy tribunal in existence that could force all creditors to come to the table, Argentina was forced to negotiate with each of its creditors independently.[255] Thus, many of Argentina’s London Club lenders eventually sold their loans at significant losses in order to disentangle themselves from the mess.[256] A desire to prevent the Argentine experience from occurring elsewhere could cause the members of the London Club to support an initiative to create a bankruptcy tribunal, if it were clear that the tribunal would act in ways that are predictable, efficient, and reasonable towards both borrowers and lenders.[257]
It ought to also be acknowledged that while many capital-exporting nations have reasons to distrust the idea of an international bankruptcy tribunal, several of those nations—especially the United States and the United Kingdom—have signaled a desire to participate in the creation of bankruptcy scheme for multi-national corporations (MNCs) that would operate on the level of international law.[258] The same concerns that cause these nations to desire such a scheme—such as their desire for clarity, efficiency, consistency, creditor-protections, and impartiality—are applicable when it comes to the sovereign debts owed by HIPCs.[259] There are currently over fifty‑four countries in debt crisis and many more are struggling to make payments on their debts.[260] As the pandemic made clear, any shocks to the world economy will continue to cause uncertainty about the future of those nations and of the loans they carry.[261] This reality is desirable for neither lenders nor borrowers, and it is a reality that could be prevented by the creation of a bankruptcy tribunal that operates on the level of international law.[262]
Conclusion
The modern global economy has been built upon a post-war legal scheme that is threatening to come undone.[263]The IMF and the World Bank have both tried to address the problems that lie in the foundation of that scheme, but their efforts have not proven successful.[264] Nations that have followed the IMF playbook have not experienced the growth that was promised.[265] And many of the sovereign debt burdens borne by those nations have ballooned as they have needed to continuously take out more loans in order to make payments on their existing loans, many of which were borrowed by dictators who either embezzled the funds or used the funds to oppress their own people.[266] The present state of debt relations amongst the nations of the world is neither sustainable nor desirable.[267]
An international bankruptcy tribunal could help to create a more desirable reality, but only if it is done correctly.[268] To do so, the convention that creates the tribunal would need to ensure that the tribunal is viewed as legitimate by both capital-exporting and capital-importing nations.[269] It would also need to ensure that it is offering indebted nations an opportunity to achieve the fresh start that is offered by most domestic bankruptcy schemes.[270] And it would need to incorporate principles of fairness and equity into the plans it creates that bind both creditors and debtors alike.[271] Of course, achieving all of this is no easy task, but the developments that have occurred within the field of international law since the end of the Second World War have laid a foundation upon which the tribunal could be built.[272] Choosing to begin the erection of such a tribunal is not only the right thing to do, it is also the wise thing to do; it will help to ensure that lenders are safe, that borrowers are prosperous, and that the processes regulating sovereign debt are broadly perceived to be legitimate.[273]
[1] See Matthew B. Masaro, Incorporating the Fresh Start into Sovereign Debt Restructuring Through Odious Debt, 104 Cornell L. Rev. 1643, 1645 (2019) (discussing the advantages of domestic bankruptcy schemes such as those found in the United States).
[2] See Stephen Kim Park & Tim R. Samples, Towards Sovereign Equity, 21 Stan. J. L. Bus. & Fin. 240, 245–46 (2016) [hereinafter Towards Sovereign Equity] (explaining that “[b]ankruptcy laws offer benefits to debtors and creditors alike by providing a venue and process for orderly resolutions in insolvency situations”).
[3] See Masaro, supra note 1 (explaining that the fresh start is “the debtor's reward for working through an organized system that maximizes the creditors' returns”).
[4] See Towards Sovereign Equity, supra note 2, at 246 (“The bankruptcy process binds all stakeholders to an in rem resolution. Cramdown mechanisms in bankruptcy law prevent a small number of holdouts from derailing a restructuring agreed to by a large majority of creditors. Other mechanisms, such as the automatic stay, prevent a creditor from acting outside of the bankruptcy process to the detriment of other creditors.”).
[5] See id.
[6] See id.
[7] See generally Masaro, supra note 1 (exploring the many benefits of domestic bankruptcy schemes such as those in the United States).
[8] See id. at 1647 (stating that the fresh start offered through bankruptcy furthers a number of “socioeconomic, economic, and morally based policy objectives”).
[9] Cf. Towards Sovereign Equity, supra note 2, at 246 (stating that “bankruptcy law defines the property rights of creditors”).
[10] See Masaro, supra note 1, at 1646 (“A bankruptcy regime that starkly favors creditors' rights will not suffice as it will alienate debtors; nor will a regime that starkly favors debtors' rights as it will alienate creditors. The fresh start grapples with this dilemma and operates as a compromise under which debtors are rewarded once they have done enough to satisfy (in the eyes of the law) their creditors.”).
[11] See Towards Sovereign Equity, supra note 2, at 249 (“Lacking the benefits of a formal bankruptcy regime, the existing system for sovereign debt restructuring is dysfunctional.”).
[12] See id. at 249 (describing how the present state of affairs has resulted in “costly litigation and inefficiencies for the international financial architecture”).
[13] See Principles for Effective Insolvency and Creditor/Debtor Regimes, The World Bank (Nov. 19, 2015),https://www.worldbank.org/en/topic/financialsector/brief/the-world-bank-principles-for-effective-insolvency-and-creditor-rights [hereinafter Principles].
[14] See Terence C. Halliday & Gregory Shaffer, Transnational Legal Orders, in Transnational Legal Orders 3, 28 (Terence C. Halliday & Gegory Shaffer eds., 2015) [hereinafter Transnational Legal Orders] (explaining how multiple normative systems often interact to shape a legal order within international); see also Susan Block-Lieb & Terence C. Halliday, Settling and Concordance: Two Cases in Global Commercial Law, in Transnational Legal Orders 75, 78 (Terence C. Halliday & Gegory Shaffer eds., 2015) [hereinafter Two Cases] (comparing the different bankruptcy regimes that exist in different types of economies around the world).
[15] See Principles, supra note 13 (assuming that the principles are being applied to commercial entities).
[16] See Masaro, supra note 1, at 1658 (“[T]he difficulties involved in negotiating and litigating sovereign debt repayment are exacerbated by the fact that there are no clear laws or rules on [when] sovereign debt is dischargeable.”).
[17] See Towards Sovereign Equity, supra note 2 (describing the benefits of a well-organized bankruptcy scheme).
[18] See Louis A. Pérez, Jr. & Deborah M. Weissman, Public Power and Private Purpose: Odious Debt and the Political Economy of Hegemony, 32 N.C. J. Int'l L. & Com. Reg. 699, 701–02 (2007) (noting that “[c]ommentators who address the burden of repayment of debts originally incurred for the purpose of repression have characterized the need to create an Odious Debt doctrine as a ‘moral imperative’ to avoid ‘morally repugnant consequences’ attending the enforcement of repayment”).
[19] See Countries in Crisis, Debt Just., https://debtjustice.org.uk/countries-in-crisis?utm_medium=referral&utm_source=website&utm_campaign=Global_south_debt&utm_content=homepagebox (last visited Nov. 27, 2023) [hereinafter Debt Justice] (listing fifty-four nations that are currently in debt crisis); see also The Indicator from Planet Money, The Curious Case of Odious Debt, NPR (Mar. 8, 2022, 7:04 PM), https://www.npr.org/2022/03/08/1085284325/the-curious-case-of-odious-debt (suggesting that there has been renewed interest in the odious debt doctrine).
[20] See generally Lindsey Schwalbach, Ahead of the Next International Financial Crisis: Contextualizing Sovereign Default and Proposing an Improvement to the Restructuring Process, 29 Minn. J. Int'l L. 243 (2020) (investigating the different ad hoc approaches that have deployed in attempting to address sovereign debt crises thus far).
[21] See Katherine Crispi, Not Just the Luck of the Irish: A Contractual Solution to the Problems of Sovereign Debt Restructuring, 37 Fordham Int'l L.J. 1859, 1893 (2014) (suggesting that the current ad hoc approach creates unnecessary costs, inefficiencies, uncertainties, and prolonged negotiations).
[22] See Lev E. Breydo, Health of Nations: Preventing A Post-Pandemic Emerging Markets Debt Crisis, 23 Nev. L. J. 463, 530–31 (2023) (“The world is on the edge of an emerging markets debt crisis, with the potential to upend hundreds of millions of lives. Before the Covid-19 pandemic, emerging markets already had record debt levels, fragmented creditor constituencies, and insufficient tools for resolving distress. The situation has grown far more dire, with sixty percent of low-income countries now at risk of insolvency.”).
[23] See Jonathan Wheatley, Poorest Countries Face $11bn Surge in Debt Repayments, Fin. Times, (Jan. 17, 2022), https://www.ft.com/content/4b5f4b54-2f80-4bda-9df7-9e74a3c8a66a (stating that the “World Bank president, warned that the ‘extraction of resources . . . by creditors’ meant that ‘the risk of disorderly defaults is growing’”).
[24] See Breydo, supra note 22, at 465 (stating that “[i]n an interconnected world, the impact [of a series of sovereign debt defaults] would not be contained”).
[25] See Molly Ryan, Sovereign Bankruptcy: Why Now and Why Not in the IMF, 82 Fordham L. Rev. 2473, 2499 (2014) (“The current ad hoc regime for coordinating and resolving sovereign debt crises is unpredictable, messy, inefficient, and it lacks legitimacy.”).
[26] See Schwalbach, supra note 20, at 272 (“There is only one option that would enable consistency, eliminate holdout creditors on already outstanding debt (effectively apply retroactively), and most importantly, create a predictable, orderly, and transparent solution to sovereign default. This solution is the creation of one International Bankruptcy Court.”).
[27] See Ryan, supra note 25, at 2518 (discussing ways to ensure that an international bankruptcy tribunal would be perceived as legitimate by both debtors and creditors).
[28] See id.
[29] See infra Part I.
[30] See infra Part II.
[31] See infra Part III.
[32] See History, Int’l Monetary Fund, https://www.imf.org/external/about/history.htm (last visited Nov. 27, 2023) [hereinafter IMF History] (beginning its discussion of the history of the modern global economy at the end of the Second World War); see also Explore History, World Bank, https://www.worldbank.org/en/archive/history (last visited Nov. 27, 2023) [hereinafter World Bank History] (doing the same).
[33] See IMF History, supra note 32 (explaining how the IMF was formed at Bretton Woods); see also World Bank History, supra note 32 (explaining how the world bank was formed at Bretton Woods).
[34] See Leonard Seabrooke, Legitimacy Gaps in the World Economy: Explaining the Sources of the IMF’s Legitimacy Crisis, 44 Int’L Pols., 2007, at 250, 256 (2007) (describing the ways the world economy has changed since 1945).
[35] See Sandra Kollen Ghizoni, Creation of the Bretton Woods System, Fed. Rsrv. Hist., https://www.federalreservehistory.org/essays/bretton-woods-created (last visited Nov. 27, 2023) (“The United Nations Monetary and Financial Conference was held in July 1944 at the Mount Washington Hotel in Bretton Woods, New Hampshire, where delegates from forty-four nations created a new international monetary system known as the Bretton Woods system. These countries saw the opportunity for a new international system after World War II that would draw on the lessons of the previous gold standards and the experience of the Great Depression and provide for postwar reconstruction. It was an unprecedented cooperative effort for nations that had been setting up barriers between their economies for more than a decade. They sought to create a system that would not only avoid the rigidity of previous international monetary systems but would also address the lack of cooperation among the countries on those systems.”).
[36] See IMF History, supra note 32 (stating that the leaders present at Bretton Woods “believed that [a framework for international economic cooperation] was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression”).
[37] See id.
[38] See id.
[39] See Crispi, supra note 21, at 1877 (explaining the original mandate of the IMF).
[40] See IMF History, supra note 32; cf. Crispi, supra note 21, at 1878 (offering an example of how the IMF can use its lending power to force nations to accept certain domestic policies).
[41] See id. at 1276 (explaining that the IMF was “created as a credit union where members would contribute an amount of money for the power to draw on the fund if they needed financial assistance”).
[42] See Schwalbach, supra note 20, at 249 (“To become a member, countries must: (1) agree to the code of conduct found in the IMF Articles of Agreement; (2) pay a quota subscription; (3) refrain from restrictions on exchange of foreign currency; and (4) strive for openness in economic policies affecting other countries . . . . Quotas are assigned to each member of the IMF based largely on its position in the world economy.”).
[43] See id.
[44] See Crispi, supra note 21, at 1876 (“Members also vote on the IMF's decisions and policies; a member's voting power reflects its financial contribution. Thus, a small group of wealthy nations has a dominant voting position: twenty-two out of the 184 member countries hold sixty percent of the votes.”).
[45] See World Bank History, supra note 32 (“The majority of time and effort was spent on the IMF Commission under Harry Dexter White’s leadership. The work of the World Bank Commission, on the other hand, occurred only in the last few days of the conference.”).
[46] See id.
[47] See id.
[48] See id.
[49] See id.
[50] See id. (“[W]hen the 1947 Marshall Plan took over post-war reconstruction efforts in Europe, the Bank quickly shifted to funding infrastructure projects around the world in sectors such as power, irrigation, and transportation. The first loan to a non-European country was to Chile in 1948 for $13.5M USD for hydroelectric power generation.”).
[51] See Odette Lienau, The Challenge of Legitimacy in Sovereign Debt Restructuring, 57 Harv. Int'l L. J. 151, 177–82 (2016) (describing both the Paris Club and the London Club).
[52] See id. at 178 (“Founded by creditor governments in 1956, the Paris Club addresses the debt owed by sovereign borrowers to official bilateral creditors--other sovereign states--at regularly scheduled meetings at the French Treasury.”).
[53] See id.
[54] See Stephen Kim Park & Tim R. Samples, Distrust, Disorder, and the New Governance of Sovereign Debt, 62 Harv. Int'l L. J. 175, 187 (2021) [hereinafter New Governance of Sovereign Debt] (stating that the London Club consists of commercial creditors and “is characterized by its informal, collaborative, and non-institutional nature”).
[55] See id.
[56] See Robert Bejesky, Currency Cooperation and Sovereign Financial Obligations, 24 Fla. J. Int'l L. 91, 160 (2012) (discussing the shift from the majority of debtor nations relying on the IMF for loans to relying on loans obtained through bilateral investment treaties (BITs)).
[57] Cf. Lienau, supra note 51, at 185 (describing how, in the 1980s, creditors were able to develop an “oligopoly of sorts, in which banks were collectively able to demand terms that sovereign debtors may have considered objectionable”).
[58] See Breydo, supra note 22, at 474 (stating that New York or London law is the most common choice of law selected in sovereign debt instruments).
[59] Cf. Lienau, supra note 51, at 184 (stating, for example, that “[f]alling export commodity prices and the U.S. Federal Reserve decision to sextuple interest rates (from 3% to 20%) precipitated Mexico's 1982 announcement of its inability to continue debt servicing, followed soon after by similar announcements from other states in Latin America and elsewhere”).
[60] See id.
[61] See Perez & Weissman, supra note 18, at 726 (“The Baker Plan was an initiative set forth by the U.S. Secretary of the Treasury James A. Baker in October 1985 for the purpose of managing the debt crisis. The plan was designed to encourage new loans by American commercial and multilateral lenders to a number of highly indebted countries. The loans would be conditioned on the willingness of the borrowing country to implement ‘“market-oriented” reform policies such as deregulation, privatization, and liberalization of trade.’ Supporters of the plan touted it as a benefit to banking interests as well as foreign policy interests.”).
[62] See id.
[63] See id.
[64] See Jean-Claude Berthélemy & Robert Lensink, The Impact of the Brady Plans on Debt Reduction and Short-Term Growth, 19 Sav. & Dev., no. 2, 1995, at 175, 175 (“The announcement of the commercial debt plan by the U.S. Secretary of the Treasury, Nicholas Brady, in 1989, marked a new era in the debt crisis management. The Brady Initiative differed from most previous official plans by explicitly considering debt reduction as a useful mean to solve the debt crisis; debt relief was legitimized. Moreover, in the Brady Plan, the IMF and the World Bank have an increased role.”).
[65] See id.
[66] See id.
[67] See id.
[68] See Perez & Weissman, supra note 18, at 727 (“The Brady Initiative sought to foster market-based solutions to the debt crises by encouraging private creditors to provide debt relief through the conversion of loans into securities bonds and the promotion of debt-equity schemes in addition to some debt reduction or forgiveness.”).
[69] See id.
[70] See id. at 728 (“Debt forgiveness in this form worked to the benefit of banks because countries would be more likely to borrow again once cleared of old debts.”).
[71] See id. (stating that foreign capital poured into Latin American following implementation of the Brady Initiative).
[72] See id. at 729–30 (“There is no evidence that the Brady Initiative, while reaffirming debtor-creditor relations between private banks and sovereign states, improved the well-being of debtor nations.”).
[73] See id. at 729 (“The literature is filled with accounts of the difficulties caused by structural adjustment programs and other conditionalities associated to neoliberal reforms.”).
[74] Cf. Bejesky, supra note 56, at 121 (“[T]he combination of the Reagan administration initiatives of turning debt to equity and reducing government spending with austerity programs during the 1980s,203 and the Washington Consensus preference for privatizations and massive foreign investment inflows into liquid assets during the 1990s opened a higher percentage of economies to capital flight.”).
[75] See id. (“[D]uring the 1990s, and often attributable to floating exchange rates, economic and currency crises hit Argentina, Brazil, Ecuador, Indonesia, Mexico, Pakistan, Russia, South Korea, Thailand, Turkey, Ukraine, and Venezuela.”).
[76] See id.
[77] See id. at 120–21 (“The deregulation process and new technologies opened a system of financialization in which political and economic growth and ideology were united and financial motives drove markets and actors within a system of computerized financial globalization. The process correlated with high corporate and investment profitability over the past three decades. Unlike the earlier system with pegged currency values and formal exchange in assets, such as by trading in gold on demand, drastic currency market reactions could follow instantly from the push of a button.”).
[78] See id. at 121.
[79] See id. (“Depleting a country's foreign reserves approximates a risk similar to that of short-term debt, and confronting this adverse condition was the rationale behind IMF paid-in-capital rules to provide liquidity in times of need.”).
[80] See id. (“With widespread currency collapses, the IMF provided short-term loans and temporarily supported currencies by replenishing capital accounts, but in exchange it proposed new austerity programs and pushed more deregulation, which ultimately backfired for some countries.”).
[81] See id.
[82] See id. at 121–22 (“Rather than alleviating ‘short-term’ debt . . . bank runs followed on entire countries, such as South Korea and Indonesia because no one wanted to be left holding a plummeting currency. Downward market spirals in Asia were labeled an ‘Asian Flu’ and in Latin America a ‘Tequila Effect’ that ‘originated in Mexico and spread to Brazil and Argentina.’ Ironically enough, as this happened, U.S. equity prices between 1995 and 2000 grew 21.2% per year and U.S. stock market capitalization tripled.”).
[83] See Lienau, supra note 51, at 187 (“[A]s a condition of IMF involvement, sovereign debtors accepting these rescue packages undertook a series of policy reforms, generally involving significant deregulation and privatization of key economic sectors and the curtailing of public expenditures (including on subsidies and social welfare programs)—the so-called Washington Consensus. Such programs tended to be unpopular within these countries, where some felt that the IMF, the target of much ire, had placed the entire burden of financial crisis adjustment on debtor state populations while expecting that private creditors would be paid in full.”).
[84] See id. (noting that “the era of near-continuous bailouts to ensure uninterrupted service of privately held debt ended in 2000”).
[85] See Jeffrey Butensky, Tango or Sirtaki? The Argentine and Greek Dance with Sovereignty and A Multilateral Sovereign Debt Restructuring Framework, 35 B.U. Int'l L. J. 157, 165 (2017) (exploring the circumstances surrounding the Argentine debt crisis).
[86] See id.
[87] See id.
[88] See id. (“Citing failure by Argentina to meet budget deficit standards, the IMF refused to disburse a $1.24 billion loan in December 2001 . . . .”).
[89] See id.
[90] See id. at 166. (“Argentina felt pressured to restructure its debt by negotiating with domestic and foreign creditors. This massive debt was held by almost 500 thousand creditors around the world, in 152 defaulted debt instruments, denominated ‘in six currencies under the laws of eight different jurisdictions.’”).
[91] See Principles, supra note 13 (advising parties to seek informal workout procedures when they cannot pay their debts).
[92] See Butensky, supra note 85, at 166.
[93] See id.
[94] See Daniel J. Brutti, Sovereign Debt Crises and Vulture Hedge Funds: Issues and Policy Solutions, 61 B.C. L. Rev. 1819, 1819 n.5 (2020) (describing how one hedge fund was able to scoop up over $500 million in Argentine sovereign debt for just $117 million).
[95] See id. at 1835 (describing the methods used by vulture hedge funds).
[96] See id. at 1827 (describing how, prior to the vulture funds’ involvement, defaulting creditors would negotiate restructurings with the London Club members).
[97] See Schwalbach, supra note 20, at 258 (describing the causes and effects of the spike in sovereign debt litigation that began in the mid-1990s).
[98] See Elizabeth Renuart, Uneasy Intersections: The Right to Foreclose and the U.C.C., 48 Wake Forest L. Rev. 1205, 1205-06 (2013) (explaining the primary causes of the financial crisis in 2008).
[99] See id.
[100] See id.
[101] See id.
[102] See id.
[103] See id.
[104] See Crispi, supra note 21, at 1879–80 (describing the global effects of the 2008 financial crisis).
[105] See id. at 1860 (offering an example of Ireland, one country that could not recover from the financial shock).
[106] See id.
[107] See id. at 1882 (“Through the MoU, the European Union and the IMF agreed to provide Ireland with financial assistance that was conditional on fulfilling the requirements of the austerity program. The MoU divided the rescue funds into quarterly installments and required Ireland to meet certain austerity goals in order to receive each installment of the loan.”).
[108] See Butensky, supra note 85, 170 (explaining that the austerity programs were incredibly unpopular amongst Greek citizens).
[109] See Stratos Pahis, Bits & Bonds: The International Law and Economics of Sovereign Debt, 115 Am. J. Int'l L. 242, 243 (2021) (“A new wave of sovereign defaults appears to be approaching. In the wake of COVID-19, public spending needs have surged and economic activity has collapsed. Over one hundred countries have petitioned the International Monetary Fund (IMF) for emergency assistance. Several countries that were previously teetering on the edge--including Argentina, Ecuador, and Lebanon—have defaulted or begun the process of restructuring their debts. As emergency measures enacted at the start of the pandemic ‘are fast becoming insufficient,’ several other countries are expected to follow close behind.”).
[110] See id.
[111] See Breydo, supra note 22, at 485 (noting that the DSSI was passed in recognition of the exceptional nature of the pandemic).
[112] See id. at 486 (explaining that “the DSSI operated solely as a debt deferment, rather than reduction, intended to be net present value (NPV)-neutral for the lenders, and repaid over five years”).
[113] See id. at 470 (arguing for action that goes beyond that envisioned by the DSSI framework).
[114] See Editorial Board, Greece’s Economic Revival is Still a Work in Progress, Fin. Times (May 16, 2023), https://www.ft.com/content/5a2c265f-58f2-424d-a16e-3f89d9fd18e6 (suggesting that nation’s such as Greece still face an uncertain future).
[115] See Breydo, supra note 23, at 465–66 (“Coming into the Covid-19 pandemic, global debt levels were already at record highs and have subsequently risen considerably, particularly for lower-income nations.”).
[116] See Seabrooke, supra note 34, at 252 (stating that the IMF has begun “to resort to strategies centred on securing a state’s ‘ownership’ of its reform policies, as well as the re-establishment of explicit global standards of conduct”).
[117] See, e.g., Debt Justice, supra note 19 (offering an example of an organization that is channeling calls to cancel the debts of HIPCs); see also Ryan, supra note 25, at 2518 (offering an example of a student-authored article that calls for the creation of an international bankruptcy tribunal).
[118] See infra Part II.
[119] See infra Part II, Section A.
[120] See infra Part II, Section B-E.
[121] See Seabrooke, supra note 34, at 250 (describing the crisis of legitimacy that has faced the IMF since the end of the Asian financial crisis).
[122] See Lienau, supra note 51, at 182 (“[S]ince the turn of the millennium and particularly within the last decade—and perhaps in response to what has been called the IMF's ‘legitimacy crisis’ since the Asian financial crisis of 1997-1998—the organization has become more politically aware and more concerned about perceptions of its own representativeness and impartiality.”).
[123] See id.
[124] See Seabrooke, supra note 34, at 257 (“The body of evidence on the Fund’s success in the implementation of reform programmes is extensive. Scholars have demonstrated that economic growth during a loan programme is more likely to drop rather than increase (Przeworski and Vreeland, 2000), and that there are often lower growth rates after the loan period. Others have pointed to how Fund programmes are strongly associated with heightened income inequality . . . . On compliance with the Fund’s policy conditions, it has also been suggested that, even when conditions are met, the wheels fall off afterwards . . . .”).
[125] See Lienau, supra note 51, at 154 (“A restructuring can be a fairly traumatic economic, social, and political event in the life of a country. While it should ideally offer financial relief in the form of extended payment schedules or a debt write-down, the process also can entail a fiscal consolidation that results in cuts to government programs and other austerity measures. Setting aside for now the question of when such measures can become counterproductive, these policies often have significant domestic distributional ramifications, and the resulting anger may erupt in economically and politically disruptive ways.”).
[126] See Seabrooke, supra note 34, at 258 (defining a “legitimacy gap” as the space between claims of legitimacy and perceptions of legitimacy by those being governed).
[127] See Lienau, supra, note 51, at 182–83 (“The IMF has progressively committed itself to the ideal of transparency, introducing in 2009 a ‘Transparency Principle’ indicating that the Fund will ‘strive to disclose documents and information on a timely basis unless strong and specific reasons argue against such disclosure,’ and following up with regular reviews of its transparency policy.”).
[128] See id. at 207 (discussing the nature of the IMF’s sovereign debt workout proposal).
[129] See id.
[130] See id. at 207–08 (discussing the potential strengths of the plan and also acknowledging the reasons that most nations rejected it).
[131] See id.
[132] See id.
[133] See id. at 208 (“The [Brookings Institute] aimed to further two goals: (1) to commit the Fund not to bail out countries with unsustainable debts in the absence of a restructuring; and (2) to protect countries restructuring under the SDAF from holdouts. The SDAF shares some features of the earlier SDRM, most notably being based in the IMF itself, using a modification of the IMF Articles of Agreement as an institutional hook and as leverage against holdouts, and relying upon IMF technical expertise (including for sustainability determinations and similar assessments). However, the SDAF does not envision an associated tribunal for claims determinations, an automatic stay on litigation, or a mechanism to bind all creditors; although holdouts would be prevented from collecting on judgments, their legal claims would technically remain intact.”).
[134] See id.
[135] See id.
[136] See id.
[137] See id.
[138] See Pahis, supra note 109, at 243 (“International investment law is a creature of treaties, mostly bilateral, entered into by states. There are nearly three thousand such bilateral investment treaties (BITs) in force today, creating a web of protections that cover an expansive set of economic assets and transactions.”).
[139] See id.
[140] See id.
[141] See generally Pahis, supra note 109 (discussing the effects of investor-state arbitration is numerous situations).
[142] See Brutti, supra note 94, at 1839 (noting the negative effects that pari passu clauses had upon Argentina’s attempts to restructure its debts).
[143] See id. at 1840 (“The court thus enjoined Argentina's payments to creditors who had agreed to a restructuring plan. The Supreme Court's subsequent denial of cert placed the debtor nation in an intolerable bind, as paying vulture holdouts in addition to servicing the restructured debt would have thrown it right back into default. Argentina was therefore forced to settle with the vultures, who then used their tremendous leverage to exact a king's ransom.”).
[144] See id.
[145] See New Governance of Sovereign Debt, supra note 54, at 200 (“In the London Club arrangements, the debtor-committee relationship was ad hoc in nature, lacking a formal set of governing rules. Typically, committees consisted of ten to fourteen members selected from the banks with the largest credit exposures. Occasionally more members were added, depending on the priorities of the debtor and the needs of a particular restructuring. Debtors often sought a degree of regional representation (that is, balancing the committee's geographic footprint with banks from various creditor countries) in appointing their committees.”).
[146] See Butensky, supra 85, at 174 (“Although the IMF initially headed Argentina's debt restructuring efforts, Argentina later decided to act on its own once it became apparent that the IMF, itself a creditor of Argentina, would present problems. This lack of an institutional negotiation partner significantly reduced the leverage that Argentina had during its 2005 and 2010 bond exchanges. Without the help of an International Financial Institution (‘IFI’), Argentina had to depend solely on its national law to restructure its debt.”); see also Lienau, supra note 51, at 153 (discussing the recent events that have led to the IMF’s identity crisis).
[147] See Ryan, supra note 25, at 1501–02 (“Collective action clauses (CACs) have garnered much attention and have been widely adopted in sovereign bond contracts since 2003 under both U.S. and European law. CACs are contract terms aimed at ameliorating problems presented by holdout creditors and collective action difficulties by enabling creditor majorities to bind a potential holdout minority in a debt restructuring vote. Rather than having to get unanimous consent for a change in terms, CACs enable changes to the terms of a bond issuance to be applied to all bondholders of such issuance, provided a prespecified majority agree to the changes.”).
[148] See id.
[149] See New Governance of Sovereign Debt, supra note 54, at 182–83 (“Essentially, CACs act as a de facto cramdown mechanism by enabling sovereign debtors to bind the terms of a restructuring on dissenting qua holdout creditors. In the absence of a bona fide insolvency regime, CACs have become a powerful tool in the global sovereign debt market.”).
[150] See id.
[151] See Brutti, supra note 94, at 1841–42 (“Although new drafting practices undeniably hold great promise, they alone will not protect vulnerable sovereigns in the next wave of defaults. Some long-term sovereign bonds issued prior to the implementation of drafting reforms remain outstanding, and may for some time. Further, a majority of outstanding sovereign debt is subject to New York state law and includes unanimous action clauses. And the market's reluctance to adopt reforms means their effect may not be felt for a generation. Moreover, restructuring still promises to be a complex endeavor even with pari passu-less collective action clauses. Sovereigns issue debt in different series and currencies. Vultures can therefore still amass blocking positions, particularly in smaller issues, which in turn may affect the restructuring of other issues.”).
[152] Cf. Brutti, supra note 94, at 1830 (“In the sovereign debt context, restructuring distressed bonds owed to thousands of dispersed creditors presents obvious logistical difficulties. And where the debtor nation is ‘too big to fail,’ institutions like the IMF may extend bailout loans, which are often contingent on the debtor implementing structural economic reforms. Such well-intentioned bailout packages, however, create incentives for debtor nations to ignore both default risk and structural reform. And the dispersion of creditors beyond the debtor nation's borders may contribute even further to moral hazard, as the financial health of a foreign creditor will likely have little impact on the debtor nation's economic outlook. Creditors' incentives are likewise distorted; IMF backstop loans may embolden them to both issue risky loans and oppose restructuring agreements.”).
[153] See NPR, supra note 19 (offering an example of a poplar news source discussing the Odious Debt doctrine).
[154] See id.
[155] Cf. Perez & Weissman, supra note 18, at 717 (explaining that the “American repudiation of the Cuban debt at the end of the U.S. war with Spain (1898) is a complex matter, principally because it is a case very much contingent on the exercise of power”).
[156] See id.
[157] See id.
[158] See id.
[159] See Bejesky, supra note 56, at 156–57 (“At the international level, perhaps the most noteworthy example of repudiation that resulted in precedent on the merits is the famous Tinoco Arbitration in 1923. After gaining power through a controversial election in April 1917, the Frederico Tinoco government in Costa Rica borrowed substantial sums from the Royal Bank of Canada. The successor government enacted the Law of Nullities No. 41 and spurned Tinoco's loan agreements. Britain, representing the Royal Bank of Canada, argued that Costa Rica was bound to repay loans of the predecessor government, while Costa Rica contended that the Tinoco regime was not a de facto or de jure government and could not legally assume obligations to bind later Costa Rican governments. Former President William Howard Taft, the sole arbiter, affirmed that predecessor governments do bind later governments when accepting obligations on behalf of a ‘state,’ but he also held that the transactions were not made on behalf of the state because the loan agreements were ‘full of irregularities’ and that bank officials were on notice that Tinoco would use the money for personal use and not for ‘legitimate governmental uses.’ The ruling provides precedent to support formal ‘odious debt’ repudiation and for creditors to bear some responsibility for failing to exercise due diligence and abetting corruption or human rights abuses. However, the facts may be more extreme in exhibiting clearer lender notice of embezzlement, while the more common twentieth century corruption cases involved sovereign loan agreements with funds that were partially allocated for a public purpose and partially embezzled.”).
[160] See id.
[161] See id.
[162] See Perez & Weissman, supra note 18, at 716–17 (“It was thus with deepening misgivings that the State Department followed developments in Cuba. Machado, U.S. officials clearly understood with regret, governed Cuba as a dictator, illegally, and through terror and torture. But, he had also served U.S. interests well. Thus, the goal of the U.S. government during the late 1920s and early 1930s was to sustain Machado's power until some satisfactory peaceful solution to the Cuban crisis presented itself. To further this end, the State Department used U.S. loans.”).
[163] See id.
[164] See id.
[165] See id. at 719–20 (“One only has to consider the long legacy of merged economic interests and political concerns that fostered U.S. sponsored successive regime changes and coups in such countries as Nicaragua, Guatemala, and Chile, as well as the use of loans as an instrumentality of Cold War positioning for the West. In these states, invasions, occupations, and regime changes were accomplished in part by a unity of interest in the United States between financial agents and U.S. political actors. Agreement as to whether an odious regime was created or defeated by the pursuit of these interests is unlikely, but the awareness of these relationships must inform any approach to these issues. A theory of Odious Debt must include more than the nature of the debt or the parties bound to it; it must also address the geopolitical interests that transcend any particular transaction.”).
[166] See Barry Herman, Doing the Right Thing: Dealing with Developing Country Sovereign Debt, 32 N.C. J. Int'l L. & Com. Reg. 773, 788 (2007) (discussing the gap that exists between legal legitimacy of sovereign debts and ethical or moral legitimacy of sovereign debts).
[167] See Perez & Weissman, supra note 18, at 702 n.9 (listing various articles that address concerns regarding the US government’s use of the odious debt doctrine to wipe out Iraq’s sovereign debt).
[168] Cf. id. at 734–35 (expressing doubts about the potential for the Odious Deby doctrine to be developed into a workable legal theory).
[169] See Herman, supra note 167, at 797 (noting how debt activists are striving to extend the Odious Debt doctrine to all HIPCs).
[170] See id. at 793–94 (“Sanjay Reddy, an economist at Barnard College, notes in this context that at any moment in time, including the day a loan contract is signed, the state represents a collection of individuals who are at different points in their life cycle, including, of course, some yet to be born, who will be affected by the terms of the loan. Thus, democracy per se cannot be an effective criterion for sovereign debtor responsibility to repay any long-term loan, as the unborn cannot vote.”).
[171] See id. at 795.
[172] See Pahis, supra note 243.
[173] See id.
[174] See id.
[175] See Brutti, supra note 94, at 1842 (“[A] majority of outstanding sovereign debt is subject to New York state law and includes unanimous action clauses.”); see also id. at n.206 (“The contracts' choice of law provisions typically select New York law.”).
[176] See Pahis, supra note 109, at 244 (“At the time these claims were asserted, it was unclear whether international investment tribunals would accept jurisdiction over sovereign debt. Greece and Argentina each argued that sovereign bonds did not constitute protected ‘investments’ as defined by the applicable investment treaties and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention). They further argued that, even if sovereign bonds were investments, they were not made in the territory of the respondent states, and (in the case of Argentina) that mass claims were disallowed by ICSID. These arguments were consistent with the weight of the commentary at the time. Today, those arguments no longer appear persuasive. Three of the four tribunals presented with the Argentine and Greek sovereign debt disputes accepted jurisdiction, and the one tribunal that did not employed questionable reasoning and interpretative methods.”).
[177] See G.A. Res. 69/319 (Sept. 29, 2015) [hereinafter Basic Principles] (declaring basic principles that ought to govern sovereign debt restructuring).
[178] See id.; see also Masaro, supra note 1, at 1646–47 (stating that the fresh start is an essential component of any effective bankruptcy scheme).
[179] See Herman, supra note 170, at 782 (noting that there have been millions of people around the world advocating for a fresh start for the world’s most impoverished nations).
[180] See id. at 780 (describing the Jubilee 2000 movement as “an international coalition of national networks of civil society organizations in 69 developed and developing countries that successfully pressured the governments of the major creditor countries to cancel the debts that poor countries owed to them and the international financial institutions they controlled”).
[181] See id. at 780 n.28.
[182] See id.
[183] See Butensky, supra note 85, at 158.
[184] See id.
[185] See id.; see, e.g., Basic Principles, supra 178 (addressing issues that have been raised by debtor nations, such as autonomy, process legitimacy, and long-term sustainability).
[186] See id.
[187] See id.
[188] See id.
[189] See id.
[190] See generally Ryan, supra note 25 (exploring each of these forces in separate sections).
[191] See Towards Sovereign Equity, supra note 2, at 249-50 (“Lacking the benefits of a formal bankruptcy regime, the existing system for sovereign debt restructuring is dysfunctional. This patchwork status quo has demonstrated inconsistency, unpredictability, and a propensity to create bad law.”).
[192] See Breydo, supra note 22, at 466 (“[S]overeign debt restructuring is also enormously consequential, as it necessitates complex, often zero-sum, trade-offs regarding everything from healthcare to infrastructure to education spending. Millions of people have to live with those choices for decades, if not generations, to come.”).
[193] See New Governance of Sovereign Debt, supra note 54, at 189 (describing the principles that gave rise to the UNCTAD principles regarding sovereign debt restructuring).
[194] See Ryan, supra note 25, at 2517 (arguing for a sovereign bankruptcy regime).
[195] See id.
[196] See id.
[197] See Lienau, supra note 51, at 212 (discussing the different groups who would be likely to resist the formation of an international bankruptcy tribunal and exploring the reasons behind each group’s likely resistance).
[198] See Herman, supra note 170, at 817 (quoting Adam Smith to argue for the necessity of an international bankruptcy regime).
[199] See Ryan, supra note 25, at 2516–17 (“The current ad hoc regime for coordinating and resolving sovereign debt crises is unpredictable, messy, inefficient, and it lacks legitimacy. Contractual devices fail to provide a comprehensive solution. And in the absence of a comprehensive solution, collective action problems go unmitigated, the overborrowing problem persists, and the well-documented problems of restructuring too little and too late remain.”).
[200] See id.
[201] See Pahis, supra note 109, at 249 n.54 (“As of June 2014, the IMF estimated that about 80% of the approximately US$ 900 billion in outstanding foreign law bonds contained CACs . . . . Of the US $ 420 billion in foreign sovereign bonds governed by New York law, approximately 75% are estimated to include CACs.”).
[202] See Herman, supra note 170, at 803 (explaining the odious debt doctrine).
[203] See Masaro, supra note 1, at 1659–60 (“The policy justifications favoring a fresh start for private debtors are just as persuasive when applied to sovereign debtors. Many of the arguments outlined above about how the fresh start alleviates economic and moral concerns for the individual also apply to the sovereign. Beyond these, the sovereign faces additional macroconcerns that the individual does not. Therefore, as this section will showcase, sovereign debtors face even more economic and moral threats from excessive debt burdens than individual debtors.”).
[204] See Towards Sovereign Equity, supra note 2, at 249–50 (“Lacking the benefits of a formal bankruptcy regime, the existing system for sovereign debt restructuring is dysfunctional. This patchwork status quo has demonstrated inconsistency, unpredictability, and a propensity to create bad law.”).
[205] See generally Seabrooke, supra 34 (exploring the IMF’s legitimacy crisis in detail).
[206] See Ryan, supra note 25, at 2517–18 (“The international bankruptcy regime should include the traditional features of bankruptcy law. These include a standstill on payments and creditor enforcement once the mechanism has been initiated, the payment of claims according to priority, the possibility of obtaining interim financing, and the ability to enforce the restructuring plan by the approval of a majority of creditors. Furthermore, in order to achieve a standstill and enforce an effective restructuring plan, the jurisdiction of the tribunal should apply to both domestic and foreign creditors. As prior experience has demonstrated, debtor and creditor countries may continue to be wary of the establishment of an international bankruptcy court. To address some of the concerns of reluctant debtor countries, the bankruptcy treaty must provide reassurance that the participating states' sovereignty will be preserved. Any treaty establishing an international bankruptcy tribunal should include protections akin to those of Chapter 9 of the U.S. Bankruptcy Code, which expressly prohibit the court from interfering with the government's political and economic powers.”).
[207] See id.
[208] See id.
[209] See id.
[210] See id.
[211] See Towards Sovereign Equity, supra note 2, at 247–48 (discussing the differences between corporate debtors and sovereign debtors).
[212] See id.
[213] See id.
[214] See id. at 257 (exploring the potential role that GDP-linked securities could play in creating a more equitable future for sovereign debt law).
[215] See Lienau, supra note 51, at 183 (stating the reasons that many commentators believe a sovereign debt tribunal ought to be seated within the IMF).
[216] See id. (“Given this new attempt at openness, the multiple roles played by the IMF, and its concern for financial stability, the Fund is, in some ways, uniquely well situated to take a global view on the international financial architecture and the role of sovereign debt restructuring within it. It is hardly surprising that the much-discussed Sovereign Debt Restructuring Mechanism (‘SDRM’) proposal of the early 2000s originated within the IMF. Nonetheless, it is also reasonable to wonder whether the Fund's multiple roles mean that it could be subject to internal conflicts of interest.”).
[217] See id. at 210. (“The most maximalist of DWM proposals envisions that debt restructuring arbitrations would be housed at an impartial international institution not directly implicated in sovereign lending. Possible institutional homes might be the Permanent Court of Arbitration (‘PCA’) or a mechanism set up through the auspices of the U.N. Secretary General or another independent U.N. agency. The establishment of such a permanent home base would likely need to be grounded in treaty, which would also have the benefit of ensuring the compliance of the debtor and other countries and therefore the enforcement of restructuring outcomes against private creditors regardless of their location.”).
[218] See Vienna Convention on Succession of States in Respect of State Property, Archives and Debts, Apr. 8, 1983, 22 I.L.M. 30.
[219] See id.
[220] See id.
[221] See Perez & Weissman, supra note 18, at 719–20 (discussing the connection between odious debts, foreign interests, and the destabilization of governments).
[222] See generally Barbara C. Matthews, Emerging Public International Banking Law? Lessons from the Law of the Sea Experience, 10 Chi. J. Int'l L. 539 (2010) (exploring the failures of the most recent law of the sea convention and attempting to apply lessons learned from those mistakes to developments in international sovereign debt law).
[223] See id. at 557 (“Early efforts at codification, including the UN Convention on the Law of the Sea I and the UN Convention on the Law of the Sea II, were relatively uncontroversial. They undertook to translate old-fashioned understandings of the territorial sea doctrine—delimited traditionally by the distance that a cannon ball could travel—into modern quantifiable standards (territorial sea = three miles from shore). Difficulties began in earnest with the third convention, the UNCLOS III, which pushed the boundaries beyond accepted custom. UNCLOS III attempts to establish a new international tribunal separate from the International Court of Justice to hear disputes among ratifying parties. It also seeks to create a new mechanism for sharing economic wealth gathered from the deep-sea bed, with a new international administrative body and adjudicative system. The US still has not ratified the treaty, and it is unclear when ratification might occur, especially since increased potential economic resources may now be available under the Arctic Sea.”).
[224] See id.
[225] See id.
[226] See id. (stating that “the controversies associated with extending the treaties to cover issues not yet settled by customary law generate cautionary lessons for those anxious to proceed quickly to formal international agreements in the financial area”).
[227] See Sabine Michalowski & Juan Pablo Bohoslavsky, Ius Cogens, Transitional Justice and Other Trends of the Debate on Odious Debts: A Response to the World Bank Discussion Paper on Odious Debts, 48 Colum. J. Transnat'l L. 59, 107-08 (2009) (exploring the relationship between the odious debt doctrine and principles of sovereign debt bankruptcy); see also Bejesky, supra note 56 n.411 (stating that “[j]us cogens norms might be violated if loans were executed in violation of fundamental human rights”).
[228] See Michalowski & Bohoslavsky, supra note 228, at 107 (“[D]ebt might be repudiated, whether or not the country would be able to repay it, where it would be so unjust as to be immoral to burden the people of the debtor state with the repayment of that debt, such as where a lender might be held criminally or civilly responsible for financing atrocities that amount to violations of ius cogens norms. At the same time, the objectives of the legal defense of odiousness are related to influencing lender behavior, not with regard to preventing unsustainable loans, but instead in order to raise lender awareness that facilitating the serious human rights violations of a borrowing regime might have adverse financial consequences.”).
[229] See Herman, supra note 170, at 786.
[230] See Matthews, supra note 223, at 543 n.14 (discussing the concept of universal jurisdiction as it relates to jus cogens violations).
[231] See Michalowski & Bohoslavsky, supra note 228, at 87–88.
[232] See Bejesky, supra note 56 n.411.
[233] See Michalowski & Bohoslavsky, supra note 228, at 112–13 (acknowledging that the World Bank’s discussion paper was a small step towards recognition of the odious debt doctrine but expressing disappointment that the World Bank did not take the discussion further).
[234] See Ryan, supra note 25, at 2517 (“These goals can best be accomplished by establishing a rules-based sovereign bankruptcy regime through a multilateral treaty organization.”).
[235] See id. (“The creation of a new treaty-based institution could therefore help to improve the efficiency of international capital markets and promote global economic stability by better addressing these sources of market failure. Both debtor and creditor countries would benefit from the formation of a sovereign bankruptcy court or tribunal.”).
[236] See id. at 2518 (discussing the importance and difficulties of balancing creditor and debtor interests).
[237] See Lienau, supra note 51, at 151–52 (“Something of a scholarly cottage industry exists to assess the legitimacy of major international organizations once they have been established, including by focusing on the degree to which these powerful actors are sufficiently participatory, accountable, and respectful of fundamental values. This academic writing resonates with similar concerns voiced by civil society groups and the broader public, and the attention to these questions is unsurprising given that these institutions have become a focal point for popular discussion in recent decades. The international economic organizations, which now govern a significant swathe of transnational economic life, have been among the foremost targets in this commentary. Recent writing investigates the legitimacy of the World Trade Organization (‘WTO’), the World Bank, the International Monetary Fund (‘IMF’ or ‘the Fund’), and the constellation of institutions and practices that make up the investor-state arbitration system.”).
[238] Cf. id.
[239] Cf. id. at 154 (“Perhaps the unique feature of institutions or rules that are considered legitimate is their ability to encourage voluntary compliance—to command a higher degree of support or acquiescence than might otherwise exist in the absence of coercion or self-interest. A [debt workout mechanism] perceived to be more legitimate could thus encourage a greater willingness on the part of domestic groups to engage in consensual restructuring processes and then implement the resulting agreements with relative equanimity, thereby minimizing the second-order disruptions that can accompany a restructuring.”).
[240] See id. at 162 (“[T]here are three main approaches to legitimation. These, in turn, correspond to three questions relevant for the formulation and implementation of a [debt workout mechanism]: (1) Source Legitimacy: First, how is a [debt workout mechanism], or particular rules associated with a [debt workout mechanism], to be formulated and by whom? A rule, mechanism, or institution may be perceived as legitimate if its source and initial establishment satisfy the key values of the legitimating group. (2) Process Legitimacy: Second, once the [debt workout mechanism] is established, do the processes by which it works line up with broadly accepted procedural standards? The ongoing processes or procedures through which an institution works or a rule is implemented--distinct from either the initial development of the rule or its results--may confer an additional and separate layer of legitimacy. (3) Outcome or Substantive Legitimacy: Is the [debt workout mechanism] able to generate successful outcomes, understood in terms of substantive goals?”).
[241] See id. at 163.
[242] See Members of the Court, Int’l Ct. of Just., https://icj-cij.org/how-the-court-works (last visited Nov. 27, 2023) (“The Court may not include more than one national of the same State. Moreover, the Court as a whole must represent the main forms of civilization and the principal legal systems of the world.”).
[243] See Ryan, supra note 25, at 2519–20.
[244] See Lienau, supra note 51, at 165–66 (“Even after an institution or rule has been established, the participation ideal that undergirds one form of source legitimation (mentioned above) can continue to play a role. In line with ideas of procedural fairness, the ongoing involvement and input of affected individuals and groups, particularly before key decisions are made, could enhance perceptions of [debt workout mechanism] legitimacy.”).
[245] See id. at 167–68 (“Transparency has value in and of itself and also supports many other elements associated with process legitimacy. To begin with, it is a precondition for ongoing participation, as it allows for the dissemination of information and policy proposals about which parties may have an opinion. Furthermore, it allows stakeholders to determine whether an institution or mechanism functions in line with their goals and is likely to result in positive outcomes. It is thus unsurprising that agencies involved in global governance, including the IMF and the World Bank, have tried to improve their transparency, albeit sometimes in response to significant external pressure.”).
[246] See Ryan, supra note 25, at 2519–20.
[247] See Lienau, supra note 51, at 169 (describing substantive legitimacy as being measured by a debt workout mechanism’s ability to “generate successful outcomes, understood in terms of substantive goals”).
[248] See id.
[249] See id.
[250] See id.
[251] See Ryan, supra note 25, at 2517–18 (describing the four central goals that ought to be pursued by a sovereign debt tribunal).
[252] See id.
[253] See id.
[254] See id.
[255] See id.
[256] See id.
[257] See id.
[258] See generally Block-Lieb & Halliday, supra note 14 (discussing the efforts made towards a transnational legal order regarding bankruptcy for MNCs).
[259] See Lienau, supra note 51, at 182 (noting the special importance of addressing legitimacy concerns with regard to debt workout mechanisms that attempt to address HIPC indebtedness).
[260] See Countries in Crisis, supra note 19.
[261] See Breydo, supra note 22, at 465.
[262] See Ryan, supra note 25, at 2520 (“Formal sovereign bankruptcy is the only way to fully solve the incomplete contracting problem inherent in sovereign debt and to effectively mitigate collective action problems. Furthermore, a well-designed comprehensive bankruptcy regime would correct many of the distortions and failures in sovereign debt markets, such as overborrowing, mispricing of risk, and restructuring too little and too late.”).
[263] See Breydo, supra note 22, at 465.
[264] See Seabrooke, supra note 34, at 257.
[265] See id.
[266] See Brutti, supra note 94, at 1829 (“Emerging markets have increased their indebtedness relative to GDP by over forty percent over the past decade. Although economists generally believe that large, industrialized economies can sustain large debt-to-GDP ratios without heightening their default risk, less developed countries remain in a precarious position. Further, surges in public debt are historically correlated with a higher incidence of default. And as recent history has indicated, sovereign default risk can rattle financial markets to their core, potentially posing systemic risks to the global financial system.”).
[267] See id.
[268] See Lienau, supra note 51, at 213–14.
[269] See id.
[270] See Masaro, supra note 1, at 1660.
[271] See Ryan, supra note 25, at 2510.
[272] See Matthews, supra note 222, at 540.
[273] See Herman, supra note 170, at 817.