The Third World Debt Crisis

The external debt burden has grown to the point that many sovereign borrowers are technically insolvent. This debt/development crisis cannot be resolved by a confrontation of abstract legal principles, which would serve neither the interests of the lenders, nor those of the borrowers. In fact, the causes are both endogenous (unrealistic economic and investment policies, over-borrowing) and exogenous (incautious lending in the days of easy money, subsequent rise of interest rates and restrictive trade policies in the North). To this comes the fact that many debtor countries have not been able to properly manage their debt in harmony with macroeconomic policies, or in terms of effective portfolio management and monitoring. This is reflected in a reactive stance taken by many sovereign debtors in debt negotiations/renegotiations, and their un-critical acceptance of onerous clauses proposed by the lenders. At a time when the Brady plan points to a negotiated solution combining some debt reduction with new money flows and a variety of conversion schemes, it is essential that debtor countries take a more affirmative stance in which legal engineering (especially by their own legal profession) has a key role to play