Sovereign Debt Restructuring under the Investor-State Dispute Regime

Abstract

With the global economy recovering from the financial crisis of 2008, this article explores a traditional policy option available for countries facing a serious economic crisis - sovereign debt restructuring (SDR) a scheme, which restructures the debts' original terms and conditions, for example, to reduce the amount of debts - and analyses how it would fare under the investor-state dispute (ISD) regime if foreign holders of sovereign bonds challenge the scheme in an ICSID proceeding. This article first examines how safeguards (such as collective action clauses) traditionally employed by countries against threats of holdout litigation by minority creditors aimed at SDR may not be applicable under the ISD regime, and further analyses whether ICSID would have jurisdiction over sovereign debts including the issue of scope of definition of investment in light of the decision by the Abaclat tribunal. This article then examines some of the substantive standards that may be raised as key issues during ICSID proceedings, including national treatment, most favored nation (MNF) and fair and equitable treatment standards. This article finally takes a look at one of the primary defences that would be available for a host state - state of necessity - and analyses and evaluates the three positions that seem to be co-existing under the current ISD regime.