An International Insolvency Court; Is it time to reconsider the concept (again)?
In the early 2000s, the International Monetary Fund (IMF)—an organization of member countries that works to ensure the stability of the international monetary system—contemplated the creation of a sovereign debt restructuring mechanism, including a sovereign debt dispute resolution forum, to address the perceived need for a bankruptcy court for sovereigns. Such a solution falls within the so-called “statutory solution camp,” that would result in the creation of an institution charged with addressing disputes between sovereign debtors and creditors, while solutions focused on the inclusion of certain collective action clauses into bond contracts fall within the market solutions camp. Although the IMF acts as both a key resource for economic research and the provider of financial assistance in certain circumstances, the IMF often appears in news headlines and political debates associated with the Greek debt buy-back, the Argentina bond crisis, and the Mexican peso crisis.
The IMF eventually shelved the concept of its dispute resolution forum, but the discussion generated a rather protracted outcry in the international community focused, in part, on whether the IMF could act as both a creditor and an insolvency adjudicator. Several commentators also point to a fundamental problem with the way the IMF currently views the financial assistance it provides and how an insolvency arbiter functions. The very concept of restructuring sovereign debt through an IMF dispute resolution forum equates to an admittance on the part of the lender, i.e. the IMF, that the negotiated terms either need to be altered or are unworkable for the borrowing country. One commentator, in particular, argued that, while the concept of an international bankruptcy court certainly has merit, the IMF “creditor problem” simply cannot be remedied; therefore, any court or institution to adjudicate sovereign bankruptcy should not be under the auspices or control of the IMF. There are other issues, of course, associated with sovereign debt that are outside the scope of this article. For example, is it possible to provide a “fresh start” for sovereigns in the same way that debtors in U.S. bankruptcy court can receive such a fresh start?
Although there are other issues associated with the mechanism proposed by the IMF, the independence problem is of chief importance. Creating an institution outside the IMF is one option, but that raises a new problem: should the sovereign debt dispute resolution forum resemble an intergovernmental institution created by a multilateral treaty, like the International Criminal Court, or should it resemble an institution more along the lines of the International Centre for Settlement of Investment Disputes, which was established pursuant to a multilateral treaty, designed to resolve investor-state disputes, and entitles member states to designate persons to the panels arbitrating disputes? Finally, should the forum resemble a private organization such as the International Chamber of Commerce, which arbitrates disputes in scenarios where parties to a contract, treaty, or arbitration agreement consent to ICC arbitration?
Although officially shelved by the IMF, the debates on such a restructuring mechanism are not completely dead. Supporting the renewed discussion on a workable statutory solution also presents an opportunity for the U.S. to lead on the international institution front, especially with respect to creating an institution that can make enforceable decisions, ensure a single forum for creditor and debtor dispute with mechanisms for coordinating lender classes, presented as independent, and providing the IMF with the appropriate role as befits a lender. As emphasized by Barry Herman and Shari Spiegel, open discussion and building momentum, combined with creativity and an eye for the political nuances, could ensure a more fruitful consideration of what such a forum would resemble and could potentially accomplish.