Fairness in Sovereign Debt

Ethics and International Affairs

Volumn 21, Issue S1, 2007, Pages 41-79

  Barry, Christian ^a   Tomitova, Lydia ^a  

^a NONE

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EID: 84864401676     PISSN: 08926794     EISSN: 17477093     Source Type: Journal    
DOI: 10.1111/j.1747-7093.2007.00084.x     Document Type: Article

References (93)

1. See Kunibert Rafer, “Applying Chapter 9 Insolvency to International Debts: An Economically Efficient Solution with a Human Face,” World Development 18, no. 2 (1990), pp. 301–313
2. Afrodad, “Fair and Transparent Arbitration on Debt” (2001), at www.afrodad.org/index.php?option= com_content&task=view&id=66&Itemid=54
3. Erlassjahr, “A Fair and Transparent Arbitration Process for Indebted Southern Countries” (September 2001), at www.erlassjahr.de/content/languages/englisch/dokumente/ftapenglischrz.pdf.
4. See Emerging Markets Trade Association, “Model Collective Action Clauses for Sovereign Notes,” January 31, 2003, at www.emta.org/ndevelop/Final_merged.pdf
5. Arturo Porzecanski, “The Constructive Role of Private Creditors,” this volume, pp. 307–319
6. Group of Ten, “Report of the Group of Ten on Contractual Clauses,” September 26, 2002; available at at www.bis.org/publ/gten 08.pdf.
7. That considerations of fairness seem to play such a foundational role, especially with respect to the assessment of social institutions, raises the question of whether and how this concept differs from the concept of justice (crisply characterized in Thomas Pogge, “Justice (Philosophical Aspects),” in Neil J. Smelser and Paul B. Baltes, eds., International Encyclopedia for the Social and Behavioral Sciences (Oxford: Pergamon, 2001), pp. 8055–8061, to which the present discussion is indebted). While we are unsure whether and how the meaning of these concepts differs, we are skeptical that the truth or (if you are inclined to moral anti-realism) assertability conditions of sentences in which the predicates fair and unfair, or just and unjust respectively, differ or differ fundamentally. Does it make sense to say that a social institution, for example, was unjust but that it was fair or that it was fair but unjust?
8. See David Miller, “Holding Nations Responsible,” Ethics 114 (2004), pp. 240–268
9. Alexander Cappelen, “Responsibility and International Distributive Justice,” in Andreas Follesdal and Thomas Pogge, eds., Real World Justice (Berlin: Springer, 2005), pp. 209–222.
10. Thomas Pogge, “Achieving Democracy,” this volume, pp. 249–273
11. Sanjay G. Reddy, “Developing Just Monetary Arrangements,” in Christian Barry and Thomas Pogge, eds., Global Institutions and Responsibilities: Achieving Global Justice (Malden, MA: Blackwell, 2005). It should be noted, however, that the claims to be repaid were mostly those of commercial banks, only some of which were based in the United States. Moreover, non-U.S. residents provided much of the funds lent (including from developing countries, recalling the role of petrodollar recycling at this time). In addition, even the creditor institutions whose agents were U.S. citizens might reject the claim that they gave even implicit consent to the policy change; indeed, it foisted difficult times on them and ultimately losses. Finally, even claims of the U.S. government, as a direct creditor, might not necessarily be linked to the policy change, since the Federal Reserve arguably took that decision independently of the government.
12. Christian Barry, “Applying the Contribution Principle,” Metaphilosophy 36, nos. 1/2 (2005), pp. 210–227.
13. Daniel Philpott, “Sovereignty,” in Edward N. Zalta, ed., The Stanford Encyclopedia of Philosophy (Summer 2003 ed.), at plato.stanford.edu/archives/sum2003/entries/sovereignty/
14. Stephen D. Krasner, Sovereignty: Organized Hypocrisy (Princeton, NJ: Princeton University Press, 1999).
15. As argued in Ronald Dworkin, Taking Rights Seriously (Cambridge, MA: Harvard University Press, 1977)
16. Ronald Dworkin, Law's Empire (Cambridge, MA: The Belknap Press/Harvard University Press, 1985).
17. Joseph Raz, The Morality of Freedom (New York: Oxford University Press, 1986)
18. Judith Jarvis Thomson, The Realm of Rights (Cambridge, MA: Harvard University Press, 1990).
19. Thomson, The Realm of Rights.
20. As put by Jeremy Waldron, “A Right to Do Wrong,” Ethics 92 (1981), pp. 21–39.
21. For a more detailed discussion, see Barry Herman, “The Players and the Game of Sovereign Debt,” this volume, pp. 9–39.
22. The terminology of powers, claims, and privileges is drawn from W. N. Hohfeld, Fundamental Legal Conceptions (New Haven, CT: Yale University Press, 1919). We owe the terms “internal” and “external sovereignty” to Thomas Pogge.
23. Seema Jayachandran and Michael Kremer, “Odious Debt,” American Economic Review 96, no. 1 (2006), pp. 82–92.
24. Porzecanski, “The Constructive Role of Private Creditors.” The recent reforms in the United States to tighten the conditions under which individuals may declare bankruptcy are also exemplary of this view.
25. Economist, “Argentina's Debt Restructuring,” May 3, 2005; available at www.economist.com/business/PrinterFriendly.cfm?story_id=3715779.
26. BBC Newsnight, “Vulture Funds Threat to Developing World,” February 14, 2007; available at news.bbc.co.uk/2/hi/programmes/newsnight/6362783.stm.
27. BBC News, Zambia Loses “Vulture Funds Case,” February 15, 2007; available at news.bbc.co.uk/2/hi/business/6365433.stm.
28. See Elliott Gotkine, “Argentine Restructuring ‘Success,” BBC News, March 4, 2005; available at news.bbc.co.uk/2/hi/business/4317009.stm
29. Andrew Balls and Adam Thomson, “Argentina Urged to Deal with Hold-out Bondholders,” Financial Times, April 29, 2005, p. 8.
30. See the litigation involving NML Capital, Ltd. v. Republic of Argentina: 2006 U.S. Dist. LEXIS 29842 (S.D.N.Y., May 15, 2006)
31. 2006 U.S. Dist. LEXIS 28247 (S.D.N.Y., May 10, 2006)
32. 2005 U.S. Dist. LEXIS 5387 (S.D.N.Y., March 31, 2005).
33. See also NML Capital v. Rep. of Argentina, U.S. Court of Appeals for the Second Circuit, Summary Order, May 13, 2005; available at www.clarin.com/diario/2005/05/13/um/fallo.pdf.
34. For a critique of collective action clauses, see Thomas Palley, “Sovereign Debt Restructuring Proposals: A Comparative Look,” Ethics & International Affairs 17, no. 2 (2003), pp. 26–33.
35. And of course also by the nature of the debt contract these conditions are stipulated in advance. To see model CACs, see Group of Ten, “Report of the Group of Ten on Contractual Clauses,” September 26, 2002; available at www.bis.org/publ/gten08.pdf; and Emerging Markets Trade Association, “Model Collective Action Clauses for Sovereign Notes.”
36. Kunibert Raffer and Hans Singer, The Foreign Aid Business: Economic Assistance and Development Co-operation (Cheltenham, UK: Edward Elgar, 1996), ch. 10, point out that creditors have arbitrarily decided on thresholds, countries, and amounts of debt reductions. They note that creditors had until recently maintained that no debtor country was eligible for reductions at all, insisting on full repayment, while claiming that countries would “grow out of debts.”
37. For criticism of the eligibility criteria of the HIPC Initiative, see Raffer and Singer, The Foreign Aid Business, ch. 11
38. UNCTAD, “Debt Sustainability: Oasis or Mirage?” (New York: United Nations, 2004), available at www.unctad.org/en/docs/gdsafrica20041_en.pdf
39. Eurodad, “What Goes Down Might Not Come Up: How Declining Commodity Prices May Undermine the HIPC Initiative” (October 2001); available at www.eurodad.org/uploadstore/cms/docs/What_ Goes_Down_Might_Not_Come_Up.pdf.
40. David Hume, A Treatise on Human Nature (Oxford: Oxford University Press, 1740/1978).
41. Russell Hardin, Trust and Trustworthiness (New York: Russell Sage Foundation, 2002).
42. Thomas Scanlon, What We Owe to Each Other (Cambridge, MA: Harvard University Press, 1998).
43. Joseph Raz, The Morality of Freedom (New York: Oxford University Press, 1986), p. 369.
44. Niko Kolodny and R. Jay Wallace, “Promises and Practices Revisited,” Philosophy & Public Affairs 31, no. 2 (2003), pp. 119–154.
45. Philosophy & Public Affairs.
46. Scanlon, What We Owe to Each Other.
47. H. L. A. Hart, “Are There Any Natural Rights?” Philosophical Review 64 (1955), pp. 175–191.
48. John Rawls, “Legal Obligation and the Duty of Fair Play,” in Samuel Freeman, ed., Collected Papers (Cambridge, MA: Harvard University Press, 1999), pp. 117–129.
49. Kolodny and Wallace, “Promises and Practices Revisited.”
50. Cheshire Calhoun, “Standing for Something,” Journal of Philosophy 92 (1995), p. 258.
51. Ashfaq Khalfan, Jeff King, and Bryan Thomas, “Advancing the Odious Debt Doctrine” (Montreal: Centre for International Sustainable Development Law, 2003); available at www.cisdl.org/pdf/debtentire.pdf
52. Jonathan Shafter, “The Due Diligence Model: A New Approach to the Problem of Odious Debt,” this volume, pp. 275–295.
53. Pogge, “Achieving Democracy.”
54. Kunibert Raffer, “International Financial Institutions and Financial Accountability,” Ethics & International Affairs 18, no. 2 (2004), pp. 61–77.
55. Joseph Stiglitz, “Ethics, Market and Government Failure, and Globalization,” paper presented to the Vatican Conference, Ninth Plenary Session, Pontifical Academy of Social Sciences, Casina Pio IV, May 2–6, 2003, p. 5; available at www2.gsb.columbia.edu/faculty/jstiglitz/download/2003_Ethics_Market_and_Government_Failure_and_Globalization.pdf
56. Bank for International Settlements, “71st Annual Report: 1 April 2000–31 March 2001,” available at www.bis.org/publ/ar2001e.pdf
57. Ann Pettifor, “Resolving International Debt Crises Fairly,” this volume, pp. 321–329
58. Raffer, “International Financial Institutions and Financial Accountability”
59. Joseph Stiglitz, Globalization and Its Discontents (New York: W. W. Norton, 2002). Indeed, U.S. law traditionally has regarded with suspicion loans to poor persons in distress, such as by payday lenders or check cashers.
60. Stiglitz, “Ethics, Market and Government Failure, and Globalization,” p. 5.
61. Raffer and Singer, The Foreign Aid Business.
62. Paul Blustem, “Argentina Didn't Fall on Its Own: Wall Street Pushed Debt Till the Last,” Washington Post, August 3, 2003, p. A1; www.washingtonpost.com/ac2/wp-dyn/A15438–2003Aug2? language=printer.
63. Raffer, “Risks of Lending and Liability of Lenders.”
64. See, e.g., Jack Boorman, “Reviving Troubled Economies,” this volume, pp. 297–305
65. Shafter, “The Due Diligence Model.”
66. Raffer, “International Financial Institutions and Financial Accountability.”
67. IDA and IMF, “The Challenges of Maintaining Long-Term External Debt Sustainability,” April 20, 2001; available at www.imf.org/external/np/hipc/2001/lt/042001.pdf
68. IMF and IDA, “Debt Sustainability in Low-Income Countries…Proposal for an Operational Framework and Policy Implications,” February 3, 2004; available at www.imf.org/external/np/pdr/sustain/2004/020304.pdf.
69. Madhur Gautam, “Debt Relief for the Poorest: An OED Review of the HIPC Initiative” (Washington, D.C.: World Bank Operations Evaluation Department, 2003), p. 28; available at siteresources.worldbank.org/IDA/Resources/HIPC_OED_review.pdf.
70. UNCTAD, “Debt Sustainability,” refers this claim to William R. Cline, International Debt Re-examined (Washington, D.C.: Institute for International Economics, 1995)
71. cited in Stijn Claessens et al., “Analytical Aspects of the Debt Problems of Heavily Indebted Poor Countries,” Policy Research Working Paper 1618 (Washington D.C.: World Bank, 1996).
72. UNCTAD, “Debt Sustainability,” p. 21
73. IMF and World Bank, “The Enhanced HIPC Initiative and the Achievement of Long-Term External Debt Sustainability,” Washington, D.C., April 15, 2002.
74. Raffer, “International Financial Institutions and Financial Accountability,” p. 75.
75. “International Financial Institutions and Financial Accountability,”., p. 73.
76. IBRD, “Toward Sustained Development in Sub-Saharan Africa: A Program of Action” (Washington, D.C.: IBRD, 1984), p. 24, quoted in Raffer, “International Financial Institutions and Financial Accountability.”
77. Alexandra Fontana, “Opening the Books: Brazil's Experience with Debt Audits,” Eurodad, September 2005; at www.eurodad.org/uploadstore/cms/docs/Brazil_Debt_Audit discussionpaper.pdf.
78. Pogge, “Achieving Democracy.”
79. Shafter, “The Due Diligence Model.”
80. Sanjay G. Reddy, “International Debt: The Constructive Implications of Some Moral Mathematics,” this volume, pp. 81–98.
81. For an extensive treatment of this point, see Robert Hockett, “Just Insurance through Global Macro-Hedging,” University of Pennsylvania Journal of International Economic Law 25 (2004), pp. 107–257.
82. Kunibert Raffer, “Applying Chapter 9 Insolvency to International Debts.”
83. Erlassjahr, “A Fair and Transparent Arbitration Process for Indebted Southern Countries.”
84. Afrodad, “Fair and Transparent Arbitration on Debt.” Some civil society organizations call for charging the IMF with the provision of loans during the arbitration process (when participating creditors are not willing to lend to the country) and giving priority to the repayment of these loans over all others. Pettifor, “Resolving International Debt Crises Fairly.”
85. The strive for consistency between rulings while rejecting prior decisions' binding precedential value is followed most prominently by the International Court of Justice. See Ian Brownlie, Principles of Public International Law (New York: Oxford University Press, 1999).
86. See Erlassjahr, “FTAP Working against Debtor Countries? Some Remarks on Counterarguments Raised by Those Who Are to Benefit,” February 2003; at www.erlassjahr.de/content/publikationen/e_ftap0302_againstdebtor.php.
87. Sony Kapoor and Meenoo Kapoor, “Financing Development towards the MDGs: What Needs to Be Done?” Heinrich Böll Foundation North America, July 2005; available at www.boell.org/docs/Boell_FinancingDevelopmentTowardsMDGs.pdf.
88. This proposal is outlined in Noreena Hertz, The Debt Threat: How Debt Is Destroying the Developing World (New York: Harper Business, 2004)
89. Sony Kapoor, “Unblocking the Path to Broader Debt Cancellation Using Trust Funds,” Presentation, “Ethics and Debt” Conference, The New School, November 1–2, 2005.
90. The idea of peer trusts goes back to Paul P. Streeten, who proposed an emulation of the Marshall Plan model of self-monitoring by recipients in the mid-1990s.
91. See Kunibert Raffer and Hans Singer, The Foreign Aid Business. NEPAD already administers a peer mechanism whose goal is to provide an overall check on governance.
92. Barry Eichengreen, “Predicting, Preventing and Managing International Financial Crises,” Testimony, House Banking Committee, U.S. Congress, September 1998; available at financialservices.house.gov/banking/91498eic.htm.
93. For a more detailed discussion of the relevance of feasibility concerns in assessing proposals for institutional reform, see Christian Barry and Sanjay Reddy, International Trade and Labor Standards: A Proposal for Linkage (New York: Columbia University Press, forthcoming).