Shooing the vultures? The case for investment treaty protection of sovereign debt

Abstract

Abstract This essay identifies a doctrinal trend away from subject-matter jurisdiction for sovereign debt in investment treaty arbitration: prominent voices have espoused the view that sovereign debt is not an ‘investment’ and therefore not protected. It rebuts that notion, making the first normative case for why sovereign bond protections advance international investment law’s goal of development. Combining the credible commitment model and efficient market hypothesis with empirical research on sovereign debt markets, it argues that by allowing high-risk, emerging-market countries to credibly commit to repayment, investor protections reduce those countries’ cost of borrowing. It presents historical evidence from the drafting of the ICSID Convention and its political context to show that the creators of international investment law intended it to apply to sovereign debt. Next, it offers a systematic guide to parsing treaty clauses to evaluate jurisdiction, proposing an inductive, text-centered but purposivist approach that emphasizes legal predictability and economic incentives. In clarifying the mechanics of bond offerings, it discredits prevailing arguments against sovereign bond protection. Finally, it proposes superior alternatives to balance the needs of distressed countries and investors.