Out of Thin Air?

Abstract

UNCTAD’s Principles are an innovative set of informal governance standards for sovereign borrowing and lending. This chapter considers to what extent existing state practice supports the Principles, or whether they were produced out of thin air. Policy responses to sovereign financial distress have differed widely, and as a result, virtually no customary international law regulating sovereign borrowing and default emerged. Traditionally, states and creditors have been subject to few legal constraints in sovereign lending and borrowing. Notwithstanding a prevalence of ad hoc approaches to resolving sovereign financial distress, this chapter finds some State practice supporting aspects of the Principles. For the most part, however, states and creditors rarely do not act in conformity with the content of the Principles with the conviction that they are bound to act in such manner. The non-binding character of the Principles follows the more general predilection in international finance for discretion rather than hard rules. Their voluntariness has the advantage of increasing the chances of state and creditor support. Over time, the Principles could become a catalyst for the creation of a body of international rules regulating sovereign lending and borrowing. . They could be an important first step in regulating sovereign borrowing and defaults - an area that has for a long been regarded as the exclusive domain of domestic law, but is of increasing international concern in an age in which sovereign debt crises affect creditors from around the world.