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De Jure

On-line version ISSN 1466-3597

De Jure (Pretoria) vol.45 n.2 Pretoria  2012




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


'n Oorsig van sekere aspekte ten opsigte van die regulering van staatsinsolvensiereg



Juanitta Calitz

Bluris, LLB, LLM, LLD (Pret); Senior Lecturer, Department of Mercantile Law, University of Johannesburg




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.



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* 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.
1 Smith Of the Revenue of Sovereign or Commonwealth Book V Ch II of Public Debts (1776).
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: (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: (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: (accessed 2012-07-01); Buckley "The Bankruptcy of Nations: An Idea Whose Time Has Come" 2009 Int Lawyer 1189.
7 Bhargava Global issues for global citizens: an introduction to key development challenges (2006) 66.         [ Links ]
8 Kaiser "Resolving Sovereign Debt Crises: Towards a Fair and Transparent International Insolvency Framework" 2010 Friedrich Ebert Stiftung Study 23. On file with the author.
9 Wood "State Insolvency: Bankruptcy without a Bankruptcy Law" 2009 Allen & Overy's Special Global Counsel at: (accessed on 2012-07-01).
10 De Paoli et al "Cost of Sovereign Default" Financial Stability Paper (Bank of England 2006) at: (accessed on 2012-07-01).         [ Links ]
11 Grigien? & Mockien? "Can a Sovereign State Declare Bankruptcy?" 2010 Baltic J of L & Politics 128. See also Sturzenegger & Zettelmeyer Debt defaults and lessons from a decade of crises (2006) ch 1 for a detailed discussion on the history of sovereign defaults and restructurings.
12 Conklin "The Theory of Sovereign Debt and Spain under Philip II" 1998 The J of Political Economy 483.         [ Links ]
13 Gianviti et al "A European Mechanism for Sovereign Debt Crisis Resolution: A Proposal" paper prepared on behalf of the Brugel Organization (2010) at: (accessed on 2012-07-01).
14 Sturzenegger & Zettelmeyer 3.
15 For a detailed discussion of the financial turmoil in Emerging Economies (EE) see Loser "Global Financial Turmoil and Emerging Market Economies: Major Contagion and a Shocking Loss of Wealth?" 2009 Global J of Emerging Market Economies 137.
16 Grigiené & Mockiené 2010 Baltic J of L & Politics 129.
17 Reinhart The Time is Different: Eight Centuries of Financial Folly (2009) xxxiii.
18 Statistical Economic and Social Research and Training Centre for Islamic Countries (SESRIC) Reports on Global Financial Crisis a Second Wave of the Global Crisis? The Eurozone Debt Crisis January-June 2011 at: 2 (accessed on 2012-07-01).
19 Eg Greece, Latvia, Iceland, Portugal, Spain, Ireland.
20 Akram 2011 J of Economics and Behavioural St316.
21 Grigiené & Mockiené 2010 Baltic J of L & Politics 128.
22 Herman "Towards a Sovereign Insolvency Mechanism: Why it matters to Small Vulnerable Economies, what it might be like, and how to get it" Consultative Workshop on Policy Options to address the Looming Debt Problems of Commonwealth Small Vulnerable Economies Kingston, Jamaica, 2010. On file with the author.
23 Stiglitz "Sovereign Debt: Notes on Theoretical frameworks and Policy Analysis" in Overcoming Developing Country Debt Crises(ed Herman) (2010) 35. See also UNCITRAL Legislative Guide on Insolvency Law (2005) 2 at: (accessed on 2012-07-01).
24 Herman op cit1. Also note that a fundamental goal of the American federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The US Supreme Court made this statement about the purpose of the bankruptcy law in the decision of Local Loan Co v Hunt 292 US 234 244: "[I]t gives to the honest but unfortunate debtor ... a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt".
25 Herman op cit 1.
26 Lubben "Out of the Past: Railroads & Sovereign Debt Restructuring" 2004 Georgetown J of Int L 14.
27 Olivares-Caminal Legal Aspects of Sovereign Debt Restructuring(2009) 103.
28 Howse "The Concept of Odious Debt in Public International Law" 2007 UNCTAD discussion papers paper no 185 at (accessed on 2012-07-01).
29 Olivares-Caminal 104.
30 Idem.
31 Ibid 105.
32 Ibid 106.
33 Das et al"Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets" in Debt Relief and Beyond: Lessons Learned and Challenges Ahead (ed Braga) (2009) ch 7.
34 Idem.
35 Das "Spill overs of Sovereign Default Risk: How much is the private sector affected" in Sovereign Debt: From Safety to Default (ed Kolb) (2011) 33.
36 Raffer "Considerations for Designing Sovereign Insolvency Procedures" 2005 Law, Social Justice & Global Development J at: (accessed on 2012-07-01).
37 Buckley "The Bankruptcy of Nations: Let the Law Reflect Reality" 2010 Banking and Financial Services Policy Report 1.
38 See also Buckley The International Financial System: Policy and Regulation (2009) 145; Buckley "Sovereign Bankruptcy" 2003 Bond LR 100.
39 Thomas "Bankruptcy Proceedings for Sovereign State Insolvency and their Effect on Capital Flows Paper" paper presented by World Institute for Development Economic Research (UNU-WiDER) 2002 at: (accessed on 2012-07-01).
40 Wood Principles of International Insolvency (2007) 756.
41 Buckley 2010 Banking and Financial Services Policy Report 1; Buckley 2009 Int Lawyer 1189; Buckley 2003 Bond LR 97.
42 Buckley 2003 Bond LR 95.
43 Portes "Resolution of Sovereign Debt Crises: The New Old Framework" in Economic Integration and Social Responsibility (ed Bourguignon) (2007) 176.
44 Schlemmer "The Enforcement of Sovereign Debt" in International Monetary and Financial Law: The Global Crisis(ed Giovanoli) (2010); Schlemmer "Die staat is na sy swernoot ... en pacta sunt servanda?" 2001 TSAR 203.
45 Wood 756.
46 Herman 7.
47 Ibid 7-8.
48 Portes in Economic Integration 176.
49 Serra The Washington Consensus Reconsidered Towards a new Global Governance(2008) ch 9.
50 Winkler Foreign Bonds: An Autopsy ( 1933) (reprinted 1999) 18.
51 Committee on Capital Markets Regulation "The Global Financial Crisis - A Plan for Regulatory Reform" 2009. On file with the author.
52 Keiser 23.
53 Oechsli published a detailed proposal of how to adapt Chapter 11 of the US Code, (11 USC §§ 1101-74 (2000)) well before Aug 1982, the date considered by many as the official beginning of the debt crisis. See Oechsli "Procedural Guidelines for Renegotiating LDC Debt: An Analogy to Chapter 11 of the US Bankruptcy Reform Act" 1980-81 Virginia J of Int L 305; See also regarding Internationalising US Municipal Insolvency: Raffer "A Fair, Equitable, and Efficient Way to Overcome a Debt Overhang" 2005 Chicago J of Int L 263.
54 Gai et al"Crisis Costs and Debtor Discipline: The Efficacy of Public Policy in Sovereign Debt Crises" (May 2001) Bank of England Working Paper No. 136 at SSRN: or (accessed on 2012-07-01).
55 Buckley 2010 Banking and Financial Services Policy Report 1 1-17. See also Buckley The International Financial System: Policy and Regulation (2009) 145; Krueger "International Financial Architecture for 2002: A New Approach to Sovereign Debt Restructuring" a speech delivered at the National Economists' Club Annual Members' Dinner, Washington DC 2001 at: (accessed on 2012-07-01). The proposal was substantially modified in a later speech, Krueger "A New Approach to Sovereign Debt Restructuring" at (accessed on 2012-07-01). See generally White "Sovereigns in Distress: Do They Need Bankruptcy?" 2002 Brookings Paper on Economic Activity 20.
56 Buckley The International Financial System: Policy and Regulation (2009) 145; Buckley 2003 Bond LR 100 and Buckley 2010 Banking and Financial Services Policy Report 31; see also Setser "The Political Economy of the SDRM" in Overcoming Developing Country Debt Crises (ed Herman) (2010) 317.
57 Raffer "The IMF's SDRM - Another Form of Simply Disastrous Rescheduling Management?" in Sovereign Debt at the Crossroads (ed Jochnick) (2005) 246.
58 Buckley 2010 Banking and Financial Services Policy Report 32.
59 Kargman & Paulus "Reforming the Process of Sovereign Debt Restructuring: A Proposal for a Sovereign debt Tribunal" paper presented at the 8th Annual International Insolvency Conference (IIC), Humboldt University, Berlin, Germany, 2008; Paulus "Some Thoughts on an Insolvency Procedure for Countries." 2002 Am J of Comp L 531-39.
60 Kaiser 5.
61 Idem.
62 For a detailed discussion on the creation, development and framework of the Paris Club see UNCTAD Discussion Papers: Cosio-Pascal "The Emerging of a Multilateral Forum for Debt Restructuring: the Paris Club" Nov 2008 at: (accessed on 2012-07-01).
63 As late as 2003, the Paris Club started to communicate with the broader public through their website at: (accessed on 2012-07-01).
64 Kaiser 5.
65 Weibel Sovereign Defaults before International Courts and Tribunals (2011) 209.
66 Couillault et al "Toward a Voluntary Code of Good Conduct for Sovereign Debt Restructuring." 2003 Financial Stability Review 154.
67 Paulus "A Standing Arbitral Tribunal as a Procedural Solution for Sovereign Debt Restructurings" in Sovereign Debt and the Financial Crisis - Will This Time be Different? (ed Braga) (2010) 318.
68 Idem.
69 Berensmann "An insolvency procedure for sovereign states: a viable instrument for preventing and resolving debt crisis?" in Sovereign Debt: From Safety to Default (ed Kolb) (2011) 383; Raffer "Applying Chapter 9 Insolvency to International Debts: An Economically Efficient Solution with a Human Face" 1990 World Development 301; Raffer "What's Good for the United States Must Be Good for the World: Advocating an International Chapter 9 Insolvency" in Kreisky Forum for International Dialogue (ed) From Cancún to Vienna, International Development in a New World (1993) 64ff Buckley 143.
70 Also referred to as the Bankruptcy Code, Code, 1978 Act or Bankruptcy Reform Act of 1978. (Pub l no 95-598, 92 Stat 2549 (1978) 11 USC par 101 et seqwhich was signed into law on 1978-11-06 and became effective on 1979-10-01.
71 Raffer World Development 301. See also Herman 468; Raffer "Sovereign Debt Workout Arrangements" in After Neoliberalism - Economic Policies That Work for the Poor(eds Weaver et al) a collection of papers presented at a conference on "Alternatives to Neoliberalism", 2002-05-23/24 in Washington, DC, The New Rules for Global Finance Coalition88-102.
72 Berensmann & Herzberg "International Sovereign Insolvency Procedure: A Comparative Look at Selected Proposals" 2007 Discussion Paper/ Deutsches Institut für Entwicklungspolitik 3.
73 Herman 468.
74 Chun "'Post-Modern' Sovereign Debt Crisis: Did Mexico Need an International Bankruptcy Forum?" 1996 Fordham LR 2647.
75 Paulus in Sovereign Debt and the Financial Crisis 317.
76 Proposal for a sovereign debt tribunal is a project of the International Insolvency Institute (III) and has been approved by the International Insolvency Institute at: (accessed on 2012-07-01); see Kargman & Paulus IIC paper 318.
77 Kargman & Paulus IIC paper 318. Schwarcz "Facing the Debt Challenge of Countries that are Too Big to Fail" 2010 Duke Law Working Papers, paper 30 at: (accessed on 2012-07-01 ) ; Paulus in Sovereign Debt and the Financial Crisis 317.
78 "A fair and transparent debt work-out procedure: 10 core civil society principles" a report from the European Network on Debt and Development (Eurodad) (2009) 7 at: 20debt %20workout%20principles_FINAL.pdf?n=13 (accessed on 2012-07-01).
79 Buckley International Financial System: Policy and Regulation 140.
80 Buckley 2003 Bond LR 97.
81 Buckley International Financial System: Policy and Regulation 141.
82 Jackson "Sovereignty - Modern: A New Approach to an Outdated Concept" 2003 The Am J of Int L 784.
83 Ibid 786. The general perception is that the concept of sovereignty as it is thought of today, particularly as to its "core" of a monopoly of power for the highest authority of what evolved as the "nation-state," began with the 1648 Treaty of Westphalia.
84 "Financial crisis reshapes sovereignty" 2010 OxResearch Daily Brief Service, Oxford: 2010-08-05.
85 Ibid 24. See also Kalmo Sovereignty in Fragments: The Past, Present and Future of a Contested Concept(2010) 102 for a discussion on the concept of sovereignty within the European Union (EU).
86 Portes in Economic Integration181.
87 Ibid.
88 Hagan "Designing a Legal Framework to Restructure Sovereign Debt" 2004-2005 Georgetown J of Int L 299; Paulus in Sovereign Debt and the Financial Crisis, Bolton & Skeel "Inside the Black Box: How Should a Sovereign Bankruptcy Regime be Structured?" 2004 Emory Law Journal' 763; see also Kargman & Paulus "Reforming the Process of Sovereign Debt Restructuring: A Proposal for a Sovereign Debt Tribunal" paper presented at the 8th Annual International Insolvency Conference, Humboldt University, Berlin, Germany, June, 2008, unpublished draft.
89 Kargman & Paulus IIC paper 6; see also Sussman & Yafeh "Institutional Reforms, Financial Development and Sovereign Debt: Britain 1690-1790" 2006 The J of Econ Hist 906-935 for an interesting discussion of the financial development in Britain.
90 Panetta "Life in the Eurozone with or without Sovereign Default" in Life in the Eurozone with or without Sovereign Default (ed Allen) (2011) 9.
91 Buckley 2003 Bond LR 101.
92 Since then a further decision was taken by the European Heads of State which resulted in a second rescue package for Greece, the maximisation of the resources of the EFSF, the recapitalisation of the European banking sector and the strengthening of economic and fiscal coordination and surveillance. See official website of the EFSF available at: (accessed on 2012-07-01) for further information on the mandate and instruments used by the Fund.
93 A Eurobond is a debt capital market instrument issued in a Euro currency through a syndicate of issuing banks and securities houses, and distributed internationally when issued; see also Choudhry An Introduction to Bond Markets(2010) ch 6.
94 "Eurozone crisis: David Cameron says ECB must act now" The Guardian 2011-11-10.
95 Gianviti et al 3.
96 See "Greece's Debt Crisis: Overview, Policy Responses, and Implications" prepared by Nelson et al as CRS Report for Congress (Prepared for Members and Committees of Congress) (2011) for a complete discussion of the Greek debt crisis.
97 Stiglitz "A principled Europe would not leave Greece to bleed" The Guardian 2010-01-25.
98 Herman "Unfinished business in the international dialogue on debt" 2003 Cepal Review 81 ; see also Stiglitz "Participation and Development: Perspectives from the Comprehensive Development Paradigm" 2002 Review of Development Economics164.
99 "Insolvency Law Reform: Promoting Trust and Confidence" New Zealand Law Commission Study (2001) Paper 11 Wellington at: Publication_101 _256_SP11.pdf (accessed on 2012-07-01).
100 Raffer 2005 Chicago J of Int L 364.
101 "Insolvency Systems in Asia: An Efficiency Perspective" OECD report 2001 at: (accessed on 2012-07-01).
102 Gianviti et al 20.
103 "Idea for a Universal History from a Cosmopolitan Point of View" translation by Beck of Kant " On History" (1963).
104 Weibel 327.
105 "Backlash grows over Greek rescue plan" Financial Times2010-04-25.
106 Roubini & Setser "Improving the Sovereign Debt Restructuring Process: Problems in Restructuring, Proposed Solutions and a Roadmap for Reform" paper presented at conference on "Improving the Sovereign Debt Restructuring Process" co-hosted by the Institute for International Economics and Institut Francais des Relations Internationales, Paris, March 2003.
107 Annan "Freedom from Want" in: We, the People, The Role of the United Nations in the 21st Century (publ UN 2000).