ANALYSIS OF RECENT TRENDS OF THE LEGAL ENFORCEMENT OF SOVEREIGN DEBT CONTRACTS

Abstract

States or their entities, for different reasons borrow money from private organizations, other States or government and international financial institutions. Like any other person, to be eligible to acquire such loan there need to be formal sovereign contract or agreement that set out every term and condition that shall regulate both the lender and the borrower. However, States as subjects of public international law, are customarily protected by the absolute immunity principle, in the way that no States are sued in foreign courts without their consents and the sovereign immunity has been long an impediment to the enforcement of sovereign debts agreement or contract talked above, except when the State was engaged into commercial transactions or activity. Nevertheless, issues related to the enforcement of sovereign debt contracts are not only limited to the sovereign immunity, but also on how contracts governing the matter are negotiated and drafted in order to have a balanced document towards a win-win situation. The aim of this study is to examine challenges associated with the enforcement of sovereign debt contracts, how those issues have been addressed and the role that could be played by an optimal sovereign debt contract for reaching a fair and effective enforcement. By analyzing sovereign debt contract, it has been noticed that most of those agreements are model law contracts in which sometimes sensitive clauses like restructuring and enforcement are not exhaustively drafted while they are very important as long as they govern the enforceability of the contract in case of default. Creditors and debtors should create effective and innovative contractual provisions to govern their relationship through contract. If the role of contracts in the enforcement of sovereign debt was emphasized by reserving a particular attention to key clauses, uncertainty would be reduced and market would operate more efficiently. This will considerably reduce defaults and therefore contracts become a solution to the attainment of sovereign debt enforce ability.