IIA Issues Note: Sovereign Debt Restructuring and International Investment Agreements
This Note examines the extent to which IIAs may affect the ability of States to implement sovereign debt restructurings when a debtor nation has defaulted or is close to default on its debt.
Numerous defaults and restructurings of the 1990s, Argentina’s debt restructuring after its crisis in 2001, as well as the recent global financial and economic crisis have all emphasized that governments may need some freedom to manoeuver in this area.
While thus far, Argentina is the only nation to be subject to IIA claims related to the nations’ sovereign debt default and subsequent restructuring, today’s situation where numerous countries face the risk of debt crises, suggests that the prospect of holdouts (i.e. investors who refuse to negotiate and demand that the debt instruments be honoured in full) bringing additional investor-State dispute settlement (ISDS) claims cannot be ruled out. It is therefore important to ensure that IIAs do not prevent debtor nations from negotiating debt restructurings in a manner that facilitates economic recovery and development.