Sovereign Debt

The book offers an updated and comprehensive view of the status of the different legal regimes that govern sovereign debt operations. While this book was not written with the outbreak in mind, it provides unique insights into the legal challenges that states and policy makers from the global south ought to consider when facing the challenges of the post Covid-19 world.  The following post offers some takeaways from the book.

The most glaring gap in global economic governance is the lack of an orderly and fair sovereign debt restructuring arrangement.  Annamaria Viterbo’s new volume, Sovereign Debt Restructuring: the Role and Limits of Public International Law, helps us understand why this is so and how we might move forward. 

Afronomicslaw.org, the leading blog on international economic law and justice issues in the Global South seeks to fill the position of a Coordinator for its African Debt Justice Initiative (AfSDJN).

This colloquium will examine Africa’s response to the pandemic, in particular, those relating to international economic law. This colloquium fills the gap left by the absence of our biennial conference in 2021 and will instead hold virtually in July 2021.

The Mozambique scandal shows how much damage irresponsible lending can cause.  A citizen or a class of citizens injured by an irresponsible loan should be able to pursue a civil suit for damages against the responsible government officials and lender or lenders:  i) in the country where one or more of the lenders is headquartered, ii) the country where one or more of the branches or subsidiaries that extended or approved the loan is located, or iii) in any country where the lender or lenders have a substantial presence.

In the meantime, since the re-entry of Mozambique into the international debt markets may take time, the poor communities may not have the wherewithal to survive that long.  So, what is the last piece of the puzzle? An IMF arrangement with conditionalities? What conditionalities? My next piece intends to consider this.

We recognise that the current proposal is limited in resolving the longer-term debt burden of developing countries. The stay of enforcement does not introduce any changes in the substantive obligations contracted by the parties. Thus, the standstill will only temporarily suspend the execution and enforcement of eligible financial obligations during the designated period. Meanwhile, interest on the principal will continue to accrue. The proposal is also meant to be used as a ‘shield’ rather than a ‘sword’, i.e. the stay will only be triggered as a defence by the sovereign debtor in the event of a claim against it by a private creditor.

The Mozambican case of odious debt is an illustration of several similar cases around the world whereby consultants from multinational corporations identify development countries with something of value, such as minerals, and persuade the authorities of these countries to secretly take on huge development loans with banks. In most cases, the money never reaches the countries. Rather, the money is transferred directly from the banks to contractors and the countries are then left with massive debts. Resources and companies from developing countries are given as collaterals for these loans. Therefore, the resources that countries should use to invest in development are transferred to service these odious debts. In summary, this is what happened in Mozambique.

On May 8, 2020, the Mozambique Constitutional Council decided that non-concessional loans totaling 622 million USD borrowed from two London-based banks – Credit Suisse and Russian VTB - was illegal, null and void. The Mozambican borrowers were three State Owned Enterprises that at the time did not been formally constituted. The basis of the Constitutional Council’s decision was that this loan was obtained without approval of Parliament. Further, the Council held that amount was in excess of the borrowing limit permissible under the Constitution and laws of Mozambique.