Browsing by Author "Karhu, Heikki"

This thesis addresses the role of public international law in the debt crises of developing countries. More specifically, it explores whether the rules of treaty law, the law of State responsibility, and international human rights law provide any guidance for debtor States seeking relief from their official creditors in times of difficulties arising from exogenous shocks. This issue is of much importance in an era when crises are more common and interrelated than before. Developing countries are particularly vulnerable to crises and, moreover, the total debt burden of developing countries has continued to increase steadily. Even though today there are some international mechanisms for resolving debt crises, such as the Paris and London Clubs and the HIPC Initiative, renegotiations continue to be based on ad hoc arrangements and political negotiations. Major creditors are generally much more powerful than their debtor countries. One reason for this is that there is no international regulation of sovereign insolvency and the role of litigation is small. Resolution of debt crises is disorderly and may come at a high cost for developing countries, as they are often deprived of their economic independence. Due to this unstructured nature of sovereign debt, many call for a more legally oriented practice. The three branches of international law that this thesis is interested in provide different approaches to debt. Firstly, treaty law concerns termination and suspension of international agreements. When the debtor faces difficulties, it may try to suspend the loan agreement on the grounds of fundamental change of circumstances (rebus sic stantibus), for example, provided that the debtor’s burden has increased in an unforeseen manner. However, applying this ground is subject to strict requirements and, moreover, treaty law is relevant only for loan agreements governed by international law. Secondly, the law of State responsibility provides for legal justifications that a debtor State may invoke if it cannot pay its debts. While force majeure is limited to situations of material impossibility, the customary defence of necessity is more interesting in the context of sovereign debt. Under necessity, the breach of an obligation is justified, if it helps to safeguard an essential interest, such as the provision of essential public services. Recently, Argentina, for example, has invoked necessity in litigations relating to its default. However, so far, courts and tribunals have been reluctant to apply necessity in practice, as the requirements for applying the defence are very strict. The third area of interest, human rights, is somewhat different from the two others. Sovereign debt has important implications for human rights and heavy debt burdens have often been found to constitute an important obstacle for the realization of economic and social rights in particular. In many cases poor debtor States are not able to both service their debts and to take care of the basic needs of their citizens. Human right aspects are often overrun by creditor interests, even though debtor States have obligations to provide a minimum level of rights to their own people and States in general are obliged to respect and not to harm the realization of rights in other countries. The biggest challenge with rights-based arguments is the lack of enforcement mechanisms. All in all, even though debt crises are normally resolved in political negotiations, international law has some kind of a role to play in their resolution. Even though they are not perfectly suitable to debt crises, the above mentioned arguments nevertheless provide legal guidance and may assist debtors to seek justice against creditor countries and international financial institutions. Such a legal approach can also make the resolution of debt crises more fair to all parties.