3.4 Bilateral investment treaties and the resolution
of sovereign debt crises
Recent years have seen a number of initiatives aimed at
reducing the social and economic costs of international
sovereign debt crises by promoting a more orderly (and
hence more timely) resolution of such crises. Some initiatives
have actually been implemented by the respective
parties involved : contractual Collective Action Clauses
(CACs) are inserted into the documentation of new
bond issues under US law, and a number of emerging
economies and private creditors’ associations have agreed
upon the text of non legally binding “Principles for stable
capital fl ows and fair debt restructuring in emerging markets”.
Other initiatives have been shelved, in particular the
so-called “statutory approaches”, such as the Sovereign
Debt Restructuring Mechanism (SDRM) initially proposed
by the First Deputy Managing Director of the IMF, Anne
Krueger.
These initiatives, concerning in particular the provision
of adequate information and addressing co-ordination
problems among creditors, perhaps did not pay suffi cient
attention to the, sometimes kaleidoscopic, general legal
framework surrounding sovereign debt crises.
Indeed, under international law, several legal norms exist
that could impact upon the rights and obligations of the
different parties involved in sovereign debt restructuring.
Among them are the numerous Bilateral Investment
Treaties (BITs). Such BITs in essence aim at attracting
foreign direct investment into less developed and emerging
economies, by guaranteeing foreign investors the
right to individual protection (and, if need be, to appropriate
defence and compensation).
In view of the substantive differences, legal as well as
economic, between their nature, aim and effects, one
would not expect BITs to interfere in any way with crisis
resolution initiatives such as CACs. However, this article
indicates that there are sound legal arguments permitting
private creditors to invoke the protection granted by BITs.
That possibility could affect the incentives for different
classes of creditors either to participate in a debt restructuring
or to hold out. The rights granted to individual
creditors under a rather general legal framework (BITs)
could hence impact upon the functioning of another, very
specifi c framework, designed to establish a proper balance
between the public good of an orderly and timely
resolution of a debt crisis, and the preservation of the
rights of private creditors as a group (CACs).
Such interaction between two different spheres is unwarranted,
in particular as the amounts involved could
become signifi cant : in the case of Argentina, the debt
remaining unrestructured after the closing of the debt
exchange offer represents 19.6 billions of US dollar, or
11.5 p.c. of GDP. The potential direct and indirect costs
involved are thus substantial.
A solution to the problem should be sought at the international
- and preferably the multilateral - level. Both a
multilateral agreement on investment and a multilateral
statutory mechanism for debt restructuring could clarify
the situation overall, with the latter presenting the advantages
of transparency and consistency. Ultimately, this
article therefore adds to the arguments in favour of the
international community resuming
aus:
Financial Stability
Review 2005
National Bank of Belgium
http://www.bnb.be/doc/ts/Publications/FSR/FSR_2005_EN.pdf
