International law and insolvency of states

Abstract

Although the insolvency of state has been known to international law and interstate relations for ages, state insolvency became of a more serious interest to international law only in the eighties of the twentieth century. By then, however, its specificity as well as the socio-economic changes and the evolution of the legal system had made state insolvency an issue of a multidisciplinary character. The phenomenon of state insolvency has evolved over years. Although nowadays states are no longer allowed to evade paying their debts, creditors, especially private ones, continue to lack efficient tools to act against debtor-countries. And yet, the position of creditors and their chances of recovering debt have been systematically growing. This paper describes instruments that are currently available to creditors of insolvent states. It is also noteworthy that there have been attempts to create a worldwide, homogenous legal framework known as a Sovereign Debt Restructuring Mechanism to address the same issue. The importance of a homogenous legal regime relating to insolvency is reflected in the development of regional solutions (EU). All the recent changes in international law have been directed towards redefining the legal status of the debtor-country, so far unduly privileged, to make it more similar to that of a private creditor. Once these changes have been implemented, the confidence in the international business transactions will increase.