Legal Aspects of International Debt

Literature › Works

Wade Mansell (1991). Legal Aspects of International Debt. Journal of Law and Society, Vol. 18, No. 4 (Winter 1991). Blackwell Publishing on behalf of Cardiff University.

Type	journal article
Scope	Comparative and methods
Method	theoretical or conceptual
Period studied	1945–1991
Regions	Latin America, Africa, Nicaragua, Third World / global
Themes	macro fiscal finance debt, sanctions divestment, comparative theory
Citation key	mansell1991

Argument

Mansell argues that Western contract law and the doctrine of legal personality are not neutral. They let rich states and banks keep extracting wealth from poor countries through 'debt', replacing gunboat diplomacy. Loans were made on unilateral floating-rate terms and with little appraisal of purpose. The IMF then enforced repayment, shifting the burden onto the poorest, who never benefited from the loans. He maintains that debts incurred by repressive regimes should not bind successor democratic governments, and that lenders to such regimes act at their own peril. The piece is conceptual and polemical and draws on secondary literature and World Bank figures. South Africa appears only in a single passing sentence.

Evidence and method

Secondary literature (Susan George, Branford and Kucinski, Onimode, Korner, Cohen, Kaletsky, Payer), World Bank debt tables, quoted IMF and US Treasury statements, and contract-law doctrine and statute (e.g. the Unfair Contract Terms Act 1977). Case illustrations are Nicaragua, Mexico, Brazil, Tanzania and Zambia. No archival or primary empirical work on South Africa.

Findings

• Mansell states, without elaboration, that the apartheid regime survived only through irresponsible commercial lending. This is the only direct reference to South Africa. (p. 15)

  Certainly the South African regime has been able to survive only through irresponsible commercial loans.

• He proposes a creditor-risk principle: lenders to repressive regimes should expect to lose their investment when the regime falls. (p. 15)

  that those who deal commercially with such regimes must expect to lose their investment in the event of their overthrow

• Loans to repressive regimes should have been at the lender's peril. (p. 17)

  It should always have been the case that loans made to aggressive, oppressive, and repressive regimes were made at the peril of the lender.

• Democratic successor governments should not be held liable for predecessors' debts. (p. 17)

  It should never have been a sustainable argument that democratic governments should be held responsible for the debts of previous regimes which were not only non-democratic but, in many instances, severely abused human rights.

• Banks lent to states without appraising viability, assuming sovereigns cannot default. (p. 6)

  There was a widespread belief that states do not become bankrupt and cannot default on loans.

• Much of the lending was recycled to creditor countries via capital flight (citing George's estimate for Latin America). (p. 6)

  Susan George suggests that in 1983-85, an incredible 70 per cent of all new loans to Latin American 'debtors' simply returned to the lending rich countries.

• Creditors' threatened legal sanctions are impracticable against concerted default. (p. 11)

  the application of such sanctions, while it might be possible in the event of debt repudiation by a single nation, would simply not be practicable in the event of a concerted default by debtor nations.

• The Nicaraguan case: most debt was incurred under Somoza and inherited by the Sandinista government. (p. 15)

  Nicaragua's outstanding debt is $4 billion, three quarters of which was contracted under the Somoza regime

• IMF adjustment packages are deflationary and typically require currency devaluation and fiscal cuts. (p. 9)

  a state will typically be required to devalue its currency, to reduce government spending and its budget deficit

• Debt service absorbed a very large share of export earnings in major debtors (Mexico example). (p. 5)

  In 1988, 45.7 per cent of the total export earnings, including workers remittances, was used for this purpose.