An overview of certain aspects regarding the regulation of sovereign insolvency law

• Author: Juanitta Calitz
• DOI: 10.10520/EJC135275
• Published date: 01 January 2012
• Date: 01 January 2012
• Pages: 329-347

329

An overview of certain aspects regarding

the regulation of sovereign insolvency law*

Juanitta Calitz

BIuris, LLB, LLM, LLD (Pret)

Senior Lecturer, Department of Mercantile Law,

University of Johannesburg

OPSOMMING

’n Oorsig van sekere aspekte ten opsigte van die regulering van

staatsinsolvensiereg

Daar is tans geen internasionale erkende of geldige insolvensiestelsel wat

toegepas kan word in die geval van die insolvensie van ’n staat nie.

Regeringsamptenare en owerhede regoor die wêreld poog tans om die impak

van die huidige internasionale ekonomiese krisis te versag deur gebruik te

maak van verskeie kunsmatige ondersteuningsmeganismes en ekonomiese

beleidsreaksies. Akademici sowel as beleidmakers pleit reeds geruime tyd vir

die ontwikkeling van internasionale maatreëls ten einde so ’n internasionale

ekonomiese krisis te hanteer en sodoende die herhaling en erns daarvan te

beperk. ’n Doeltreffende en effektiewe insolvensiestelsel is ’n kritiese

komponent van elke goed-funksionerende mark-ekonomie en die huidige

debat oor ekonomiese globalisering kan ook nie geïgnoreer word nie. Die

onlangse ekonomiese ondergang van Griekeland en ander Europese lande

het die behoefte beklemtoon om ekonomiese aangeleenthede ten opsigte

van staatsinsolvensies op ’n tydige, ordelike en voorspelbare wyse aan te

spreek. Die doel van hierdie bespreking is nie om die moontlike oorsake,

implikasies en oplossings vir die huidige internasionale ekonomies krisis te

bespreek nie, maar om ’n oorsig van sekere aspekte met betrekking tot

staatsinsolvensie te gee en die behoefte aan ’n internasionale insolvensie-

raamwerk te beklemtoon. So ’n stelsel het die potensiaal om toekomstige

finansiële krisisse te voorkom of minstens die impak daarvan te verlig.

1Introduction

When it becomes necessary for a state to declare itself bankrupt, in the

same manner as when it becomes necessary for an individual to do so,

a fair, open and avowed bankruptcy is always the measure which is both

least dishonorable to the debtor, and least hurtful to the creditor.1

During the past few years the heightened interest and focus on

sovereign insolvency law by international institutions such as the

International Monetary Fund (IMF) and the World Bank has been

mirrored not only in the international media but worldwide sovereign

insolvency law has increasingly become the subject of scholarly articles,

1 Part of this research was presented at the INSOL Europe Annual Congress’

Academic meeting 2011, Venice as well as a paper delivered at the INSOL

Academics' Group Meeting 2011, Singapore.

1Smith

Of the Revenue of Sovereign or Commonwealth

Book V Ch II of

Public Debts (1776).

*

330

2012 De Jure

reflection and debate.2 Stories about debt downgrades, a double dip

recession and sovereign-debt defaults are dominating the headlines and

new proposals to strengthen the global financial safety net are being put

to the test on a daily basis. Recently governments and authorities across

the globe have also been using a wide array of policy responses to

mitigate the impact of the global crisis and in some instances sovereign

default.3 These measures range from emergency bailouts to aggressive

monetary easing and massive stimulus packages.

When discussing sovereign insolvency law it should be highlighted

that to refer to a government as being bankrupt is to use a metaphor.4

There is currently no internationally recognised and legitimate system of

law or procedure relating to insolvency law that can be applied to assist

the creditors of a sovereign debtor.5 In recent months it has become

apparent that many players in the global financial system have dug a

debt hole far larger than they can reasonably expect to escape from and

the case of Greece has ushered in the second phase of the financial crisis,

namely that of potential sovereign default.6 Efforts to improve the

framework for the resolution of the international economic crises have

been on the international policy agenda for a number of years, but the

recent financial crisis has brought new urgency to the matter.

The purpose of this article is not to envisage the possible causes,

implications and solutions to the current sovereign debt crisis but to give

an overview of certain aspects pertaining to sovereign insolvency law

and to stir the debate on the need for an international sovereign

insolvency framework or mechanism for sovereign debt crisis resolution.

Such a mechanism would have the potential to avert future financial

crises or at least alleviate their destructiveness by bringing to situations

of state insolvency a similar structure and discipline that at present

applies within countries with efficient and effective bankruptcy laws.7

2 See

inter alia

: Kolb

Sovereign Debt: From Safety to Default

(2011); Lynn

Bust: Greece, the Euro and the Sovereign Debt Crisis

(2011); Tomz

Reputation and International Cooperation: Sovereign Debt across Three

Centuries

(2007) for a detailed discussion of the concept of “sovereign debt”.

3 See Arieff “Global Economic Crisis: Impact on Sub-Saharan Africa and

Global Policy Responses” in

CRS Report for Congress

(2010); Jara

et al

“The

Global Crisis and Latin America: Financial Impact and Policy Responses”

2009

BIS QR

at: SSRN: http://ssrn.com/abstract=1513216 (accessed on

2012-07-01); International Monetary Fund (IMF)

“Greece: Stand-By

Arrangement – Review under the Emergency Financing Mechanism” in

IMF

Country Report, No. 10/217

(2010 )

at: http://www.imf.org/external/pubs/ft/

scr/2010/cr10217.pdf (accessed on 2012-07-01).

4Herman

et al

Overcoming Developing Country Debt Crises

(2010) 3.

5

Ibid

.

6 In 2010, the public debt of Greece had reached €290 billion and public debt

to GDP ratio had reached 12.7 percent. See Akram

et al

“The Greek

Sovereign Debt Crisis: Antecedents, Consequences and Reforms Capacity”

2011

J of Eco and Behavioral St

306. See also Gros “Towards a Euro(Pean)

Monetary Fund” 2010

CEPS Policy Brief No. 202

at: SSRN: http://ssrn.com/

abstract=1604446 (accessed 2012-07-01); Buckley “The Bankruptcy of

Nations: An Idea Whose Time Has Come” 2009

Int Lawyer

1189.