Chapter 5: A New Era for International Finance
5. A new era for international finance THE GAME CHANGERS Recent developments, such as Iraq’s massive debt reduction, have contributed to changing the landscape of international finance, and more specifically the parameters within which sovereign lenders and debtors operate. Iraq’s 80 per cent debt write-down, although approved by Western powers, was nevertheless an affront to the conventional rule that sovereign debts must be repaid where the government changes but the state does not – this issue was discussed in Chapters 1 and 2 above. Perhaps unintentionally, the events in Iraq weakened the claim for the conventional rule. While a juridical doctrine of odious debt did not emerge from Iraq’s debt workout, the exercise did catapult the odious debt concept into official and mainstream awareness – which helped achieve significant debt relief for Iraq, and sparked calls for similar relief for other heavily indebted countries with histories of illegitimate debt.1 In addition to the events in Iraq, there are a number of other recent happenings that fundamentally alter the sovereign finance arena. They include the following: ● ● ● the successful use of a government-commissioned debt audit by Ecuador to reduce its foreign debt, the emergence of a new wave of sovereign creditors, and the evolution of technology – in particular the internet. As a result of these game-changing developments, the existing legal architecture for sovereign finance is quickly becoming outdated and inapplicable. This is not surprising, given that the old framework was put in place after World War II, and has been in place since then...
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