Debts, Human Rights, and the Rule of Law: Advocating a Fair and Efficient Sovereign Insolvency Model

Court decisions against Argentina, and the recent Resolution of the UN’s General Assembly (GA) forcefully recalled a well-known glaring gap in the international financial architecture and the limits of the contractual approach. Demanding debt reductions, the newly elected Greek government raised again the issue of insolvency. So far, official claims have been reduced quietly already, while stating that official haircuts would be impossible, e.g., by lowering interest rates, deferring debt service or cancelling the EFSF guarantee fee.

The UN-Resolution demanded the elaboration of ‘a multilateral legal framework for sovereign debt restructuring processes’ (GA 2014). Regretting the absence of appropriate mechanisms, the Human Rights Council spoke of the ‘unjust nature of the current system, which directly affects the enjoyment of human rights in debtor States’ (HRC 2014, p.3). If debtor states can no longer finance their obligations under human rights law, people are denied basic human rights. Unlike under any civilized municipal law, debtor protection continues to be refused to the poorest by those creditor governments safeguarding debtor protection at home. All domestic legal systems have established insolvency as the only economically efficient and fair solution. Historical record and the fact that no one wants to abolish it, prove this solution right.