¹ See Kunibert Raffer, “Applying Chapter 9 Insolvency to International Debts: An Economically Efficient Solution with a Human Face, ” World Development 18, no. 2 (1990), pp. 301–13; Afrodad, “Fair and Transparent Arbitration on Debt” (2001), at http:\\www.afrodad.org/index.php?option=com_content&task=view&id=66&Itemid=54; and Erlassjahr, “A Fair and Transparent Arbitration Process for Indebted Southern Countries” (September 2001), at http:\\www.erlassjahr.de/content/languages/englisch/dokumente/ftap_englisch_rz.pdf.

² See Emerging Markets Trade Association, “Model Collective Action Clauses for Sovereign Notes, ” January 31, 2003, at http:\\www.emta.org/ndevelop/Final_merged.pdf; Arturo Porzecanski, “The Constructive Role of Private Creditors, ” this volume, pp. 307–19; and Group of Ten, “Report of the Group of Ten on Contractual Clauses, ” September 26, 2002; available at at http:\\www.bis.org/publ/gten08.pdf.

³ That considerations of fairness seem to play such a foundational role, especially with respect to the assessment of social institutions, raises the question of whether and how this concept differs from the concept of justice (crisply characterized in Thomas Pogge, “Justice (Philosophical Aspects), ” in Neil J. Smelser and Paul B. Baltes, eds., International Encyclopedia for the Social and Behavioral Sciences(Oxford: Pergamon, 2001), pp. 8055–61, to which the present discussion is indebted). While we are unsure whether and how the meaning of these concepts differs, we are skeptical that the truth or (if you are inclined to moral anti-realism) assertability conditions of sentences in which the predicates fair and unfair, or just and unjust respectively, differ or differ fundamentally. Does it make sense to say that a social institution, for example, was unjust but that it was fair or that it was fair but unjust?

⁴ In this essay, by “contracts” we understand broadly any binding agreement, which includes both formal/legal contracts and informal/nonlegal practices that are customary when dealing with sovereign debts.

⁵ See David Miller, “Holding Nations Responsible, ” Ethics 114 (2004), pp. 240–68; Alexander Cappelen, “Responsibility and International Distributive Justice, ” in Andreas Follesdal and Thomas Pogge, eds., Real World Justice(Berlin: Springer, 2005), pp. 209–22.

⁶ Thomas Pogge, “Achieving Democracy, ” this volume, pp. 249–73; Sanjay G. Reddy, “Developing Just Monetary Arrangements, ” in Christian Barry and Thomas Pogge, eds., Global Institutions and Responsibilities: Achieving Global Justice(Malden, MA: Blackwell, 2005). It should be noted, however, that the claims to be repaid were mostly those of commercial banks, only some of which were based in the United States. Moreover, non-U.S. residents provided much of the funds lent (including from developing countries, recalling the role of petro-dollar recycling at this time). In addition, even the creditor institutions whose agents were U.S. citizens might reject the claim that they gave even implicit consent to the policy change; indeed, it foisted difficult times on them and ultimately losses. Finally, even claims of the U.S. government, as a direct creditor, might not necessarily be linked to the policy change, since the Federal Reserve arguably took that decision independently of the government.

⁷ Christian Barry, “Applying the Contribution Principle, ” Metaphilosophy 36, nos. 1/2 (2005), pp. 210–27.

⁸ Daniel Philpott, “Sovereignty, ” in Edward N. Zalta, ed., The Stanford Encyclopedia of Philosophy(Summer 2003 ed.), at plato.stanford.edu/archives/sum2003/entries/sovereignty/; and Stephen D. Krasner, Sovereignty: Organized Hypocrisy(Princeton, NJ: Princeton University Press, 1999).

⁹ As argued in Ronald Dworkin, Taking Rights Seriously(Cambridge, MA: Harvard University Press, 1977); and Ronald Dworkin, Law's Empire(Cambridge, MA: The Belknap Press/Harvard University Press, 1985).

¹⁰ Joseph Raz, The Morality of Freedom(New York: Oxford University Press, 1986); and Judith Jarvis Thomson, The Realm of Rights(Cambridge, MA: Harvard University Press, 1990).

¹¹ Thomson, The Realm of Rights.

¹² As put by Jeremy Waldron, “A Right to Do Wrong, ” Ethics 92 (1981), pp. 21–39.

¹³ It is also important to note that even if we do hold that I am obliged to repay on the original schedule, and that the creditor may permissibly demand repayment in full, we may not feel that he may permissibly demand repayment on the original schedule. If the cost to him of allowing greater flexibility in repayment terms is slight, we may think that he acts very wrongly if he nevertheless insists on the original schedule.

¹⁴ Through the 1980s, most of the long-term general purpose private foreign lending to governments constituted credit extended by commercial bank syndicates. Most of the bank loans that became “nonperforming” debt of crisis countries were converted into bonds of lower value in the early 1990s. Bonds then became the preferred general instrument for long-term sovereign borrowing, while loans from individual banks continued to be important in trade financing, project finance, and other needs. Though debtors are formally treated as a uniform class, we can distinguish among them in terms of the kind of credit to which they have access. For example, countries with low per capita income and undeveloped but resource-rich economies (such as Nigeria) will have some ability to sell bonds in international markets (because it is an oil producer), as well as access to multilateral lenders that lend on concessional terms such as the International Development Association, the concessional lending arm of the World Bank (because it is poor), and to official lenders (because of its strategic importance). In contrast, countries with low per capita income and undeveloped and resource-poor economies will generally only have access to government (or government-guaranteed private lending, as for export financing) and multilateral lenders. Middle-income countries with emerging markets generally have some access to all three types of creditors (though to what extent depends on the their particular levels of income per capita for multilateral lenders, their creditworthiness for private lenders, and on their perceived significance for official creditors).

¹⁵ For a more detailed discussion, see Barry Herman, “The Players and the Game of Sovereign Debt, ” this volume, pp. 9–39.

¹⁶ The terminology of powers, claims, and privileges is drawn from W. N. Hohfeld, Fundamental Legal Conceptions(New Haven, CT: Yale University Press, 1919). We owe the terms “internal” and “external sovereignty” to Thomas Pogge.

¹⁷ Seema Jayachandran and Michael Kremer, “Odious Debt, ” American Economic Review 96, no. 1 (2006), pp. 82–92.

¹⁸ Porzecanski, “The Constructive Role of Private Creditors.” The recent reforms in the United States to tighten the conditions under which individuals may declare bankruptcy are also exemplary of this view.

¹⁹ Economist, “Argentina's Debt Restructuring, ” May 3, 2005; available at http:\\www.economist.com/business/PrinterFriendly.cfm?story_id=3715779.

²⁰ BBC Newsnight, “Vulture Funds Threat to Developing World, ” February 14, 2007; available at news.bbc.co.uk/2/hi/programmes/newsnight/6362783.stm.

²¹ BBC News, “Zambia Loses ‘Vulture Funds’ Case, ” February 15, 2007; available at news.bbc.co.uk/2/hi/business/6365433.stm.

²² See Elliott Gotkine, “Argentine Restructuring ‘Success, ’” BBC News, March 4, 2005; available at news.bbc.co.uk/2/hi/business/4317009.stm; and Andrew Balls and Adam Thomson, “Argentina Urged to Deal with Hold-out Bondholders, ” Financial Times, April 29, 2005, p. 8.

²³ See the litigation involving NML Capital, Ltd. v. Republic of Argentina: 2006 U.S. Dist. LEXIS 29842 (S.D.N.Y., May 15, 2006); 2006 U.S. Dist. LEXIS 28247 (S.D.N.Y., May 10, 2006); and 2005 U.S. Dist. LEXIS 5387 (S.D.N.Y., March 31, 2005). See also NML Capital v. Rep. of Argentina, U.S. Court of Appeals for the Second Circuit, Summary Order, May 13, 2005; available at http:\\www.clarin.com/diario/2005/05/13/um/fallo.pdf.

²⁴ For a critique of collective action clauses, see Thomas Palley, “Sovereign Debt Restructuring Proposals: A Comparative Look, ” Ethics & International Affairs 17, no. 2 (2003), pp. 26–33.

²⁵ And of course also by the nature of the debt contract these conditions are stipulated in advance. To see model CACs, see Group of Ten, “Report of the Group of Ten on Contractual Clauses, ” September 26, 2002; available at http:\\www.bis.org/publ/gten08.pdf; and Emerging Markets Trade Association, “Model Collective Action Clauses for Sovereign Notes.”

²⁶ Kunibert Raffer and Hans Singer, The Foreign Aid Business: Economic Assistance and Development Co-operation(Cheltenham, UK: Edward Elgar, 1996), ch. 10, point out that creditors have arbitrarily decided on thresholds, countries, and amounts of debt reductions. They note that creditors had until recently maintained that no debtor country was eligible for reductions at all, insisting on full repayment, while claiming that countries would “grow out of debts.” For criticism of the eligibility criteria of the HIPC Initiative, see Raffer and Singer, The Foreign Aid Business, ch. 11; UNCTAD, “Debt Sustainability: Oasis or Mirage?” (New York: United Nations, 2004), available at http:\\www.unctad.org/en/docs/gdsafrica20041_en.pdf; and Eurodad, “What Goes Down Might Not Come Up: How Declining Commodity Prices May Undermine the HIPC Initiative” (October 2001); available at http:\\www.eurodad.org/uploadstore/cms/docs/What_Goes_Down_Might_Not_Come_Up.pdf.

²⁷ David Hume, A Treatise on Human Nature(Oxford: Oxford University Press, 1740/1978).

²⁸ Russell Hardin, Trust and Trustworthiness(New York: Russell Sage Foundation, 2002).

²⁹ Thomas Scanlon, What We Owe to Each Other(Cambridge, MA: Harvard University Press, 1998).

³⁰ Joseph Raz, The Morality of Freedom(New York: Oxford University Press, 1986), p. 369.

³¹ Niko Kolodny and R. Jay Wallace, “Promises and Practices Revisited, ” Philosophy & Public Affai rs 31, no. 2 (2003), pp. 119–54.

³² Ibid.; and Scanlon, What We Owe to Each Other.

³³ H. L. A. Hart, “Are There Any Natural Rights?” Philosophical Review 64 (1955), pp. 175–91. John Rawls, “Legal Obligation and the Duty of Fair Play, ” in Samuel Freeman, ed., Collected Papers(Cambridge, MA: Harvard University Press, 1999), pp. 117–29.

³⁴ Kolodny and Wallace, “Promises and Practices Revisited.”

³⁵ Cheshire Calhoun, “Standing for Something, ” Journal of Philosophy 92 (1995), p. 258.

³⁶ Ashfaq Khalfan, Jeff King, and Bryan Thomas, “Advancing the Odious Debt Doctrine” (Montreal: Centre for International Sustainable Development Law, 2003); available at http:\\www.cisdl.org/pdf/debtentire.pdf; and Jonathan Shafter, “The Due Diligence Model: A New Approach to the Problem of Odious Debt, ” this volume, pp. 275–95.

³⁷ Pogge, “Achieving Democracy.”

³⁸ Kunibert Raffer, “International Financial Institutions and Financial Accountability, ” Ethics & International Affairs 18, no. 2 (2004), pp. 61–77.

³⁹ Joseph Stiglitz, “Ethics, Market and Government Failure, and Globalization, ” paper presented to the Vatican Conference, Ninth Plenary Session, Pontifical Academy of Social Sciences, Casina Pio IV, May 2–6, 2003, p. 5; available at www2.gsb.columbia.edu/faculty/jstiglitz/download/2003_Ethics_Market_and_Government_Failure_and_Globalization.pdf.

⁴⁰ Bank for International Settlements, “71st Annual Report: 1 April 2000–31 March 2001, ” available at http:\\www.bis.org/publ/ar2001e.pdf; Ann Pettifor, “Resolving International Debt Crises Fairly, ” this volume, pp. 321–29; Raffer, “International Financial Institutions and Financial Accountability”; Joseph Stiglitz, Globalization and Its Discontents(New York: W. W. Norton, 2002). Indeed, U.S. law traditionally has regarded with suspicion loans to poor persons in distress, such as by payday lenders or check cashers.

⁴¹ Stiglitz, “Ethics, Market and Government Failure, and Globalization, ” p. 5.

⁴² Raffer and Singer, The Foreign Aid Business.

⁴³ This factor should not be overstated, however. Most bondholders of Argentinean debt, for example, would not accept the assertion that they were in an effectively privileged position with respect to the Argentine government, even if they retained a formally privileged position.

⁴⁴ Though it is generally not discussed, this problem also applies to the case of official lenders whose governments are undemocratic—such as the case with lending by the former communist regimes of Eastern Europe, and as it might some day arise with respect to China.

⁴⁵ Paul Blustein, “Argentina Didn't Fall on Its Own: Wall Street Pushed Debt Till the Last, ” Washington Post, August 3, 2003, p. A1; http:\\www.washingtonpost.com/ac2/wp-dyn/A15438-2003Aug2?language=printer.

⁴⁶ Raffer, “Risks of Lending and Liability of Lenders.”

⁴⁷ See, e.g., Jack Boorman, “Reviving Troubled Economies, ” this volume, pp. 297–305; and Shafter, “The Due Diligence Model.”

⁴⁸ Raffer, “International Financial Institutions and Financial Accountability.”

⁴⁹ IDA and IMF, “The Challenges of Maintaining Long-Term External Debt Sustainability, ” April 20, 2001; available at http:\\www.imf.org/external/np/hipc/2001/lt/042001.pdf; and IMF and IDA, “Debt Sustainability in Low-Income Countries—Proposal for an Operational Framework and Policy Implications, ” February 3, 2004; available at http:\\www.imf.org/external/np/pdr/sustain/2004/020304.pdf.

⁵⁰ Madhur Gautam, “Debt Relief for the Poorest: An OED Review of the HIPC Initiative” (Washington, D.C.: World Bank Operations Evaluation Department, 2003), p. 28; available at siteresources.worldbank.org/IDA/Resources/HIPC_OED_review.pdf.

⁵¹ UNCTAD, “Debt Sustainability, ” refers this claim to William R. Cline, International Debt Reexamined(Washington, D.C.: Institute for International Economics, 1995), cited in Stijn Claessens et al., “Analytical Aspects of the Debt Problems of Heavily Indebted Poor Countries, ” Policy Research Working Paper 1618 (Washington D.C.: World Bank, 1996).

⁵² UNCTAD, “Debt Sustainability, ” p. 21; and IMF and World Bank, “The Enhanced HIPC Initiative and the Achievement of Long-Term External Debt Sustainability, ” Washington, D.C., April 15, 2002.

⁵³ Raffer, “International Financial Institutions and Financial Accountability, ” p. 75.

⁵⁴ Ibid., p. 73.

⁵⁵ IBRD, “Toward Sustained Development in Sub-Saharan Africa: A Program of Action” (Washington, D.C.: IBRD, 1984), p. 24, quoted in Raffer, “International Financial Institutions and Financial Accountability.”

⁵⁶ This is not to discount the significance from a point of justice that the parties harmed would be able to receive compensation for damages. The systemic contribution of this reform, however, is to reduce the incidence of such cases arising.

⁵⁷ Alexandra Fontana, “Opening the Books: Brazil's Experience with Debt Audits, ” Eurodad, September 2005; at http:\\www.eurodad.org/uploadstore/cms/docs/Brazil_Debt_Auditdiscussionpaper.pdf.

⁵⁸ Pogge, “Achieving Democracy.”

⁵⁹ Shafter, “The Due Diligence Model.”

⁶⁰ Sanjay G. Reddy, “International Debt: The Constructive Implications of Some Moral Mathematics, ” this volume, pp. 81–98.

⁶¹ For an extensive treatment of this point, see Robert Hockett, “Just Insurance through Global Macro-Hedging, ” University of Pennsylvania Journal of International Economic Law 25 (2004), pp. 107–257. In the United States, “income-contingent” student loans were pioneered by James Tobin in the late 1960s. In the 1970s, Yale University implemented such a plan, called the “Tuition Postponement Option.”

⁶² Kunibert Raffer, “Applying Chapter 9 Insolvency to International Debts.”

⁶³ Erlassjahr, “A Fair and Transparent Arbitration Process for Indebted Southern Countries.”

⁶⁴ Afrodad, “Fair and Transparent Arbitration on Debt.” Some civil society organizations call for charging the IMF with the provision of loans during the arbitration process (when participating creditors are not willing to lend to the country) and giving priority to the repayment of these loans over all others. Pettifor, “Resolving International Debt Crises Fairly.”

⁶⁵ The strive for consistency between rulings while rejecting prior decisions’ binding precedential value is followed most prominently by the International Court of Justice. See Ian Brownlie, Principles of Public International Law(New York: Oxford University Press, 1999).

⁶⁶ See Erlassjahr, “FTAP Working against Debtor Countries? Some Remarks on Counterarguments Raised by Those Who Are to Benefit, ” February 2003; at http:\\www.erlassjahr.de/content/publikationen/e_ftap0302_againstdebtor.php.

⁶⁷ Sony Kapoor and Meenoo Kapoor, “Financing Development towards the MDGs: What Needs to Be Done?” Heinrich Böll Foundation North America, July 2005; available at http:\\www.boell.org/docs/Boell_FinancingDevelopmentTowardsMDGs.pdf.

⁶⁸ This proposal is outlined in Noreena Hertz, The Debt Threat: How Debt Is Destroying the Developing World(New York: Harper Business, 2004); and Sony Kapoor, “Unblocking the Path to Broader Debt Cancellation Using Trust Funds, ” Presentation, “Ethics and Debt” Conference, The New School, November 1–2, 2005. The idea of peer trusts goes back to Paul P. Streeten, who proposed an emulation of the Marshall Plan model of self-monitoring by recipients in the mid-1990s. See Kunibert Raffer and Hans Singer, The Foreign Aid Business. NEPAD already administers a peer mechanism whose goal is to provide an overall check on governance.

⁶⁹ Indeed, this idea may help to address the problem of how to deal with cases of countries whose debts may be illegitimate, yet creditors may be deemed ethically obliged to demand repayment because they have strong reason to believe that these resources would do more harm than good if left in the regime's hands.

⁷⁰ Barry Eichengreen, “Predicting, Preventing and Managing International Financial Crises, ” Testimony, House Banking Committee, U.S. Congress, September 1998; available at financialservices.house.gov/banking/91498eic.htm.

⁷¹ For a more detailed discussion of the relevance of feasibility concerns in assessing proposals for institutional reform, see Christian Barry and Sanjay Reddy, International Trade and Labor Standards: A Proposal for Linkage(New York: Columbia University Press, forthcoming).