Protection of the Poor and the Millennium Development Goals
Chapter 5: The Raffer Proposal: An International Chapter 9 for Countries
5. The Raffer Proposal: an international Chapter 9 for countries As pointed out in Chapter 3, emulating corporate insolvency (in the US Chapter 11, Title 11 US Code) was repeatedly advocated early on in the 1980s. The late Alfred Herrhausen, then CEO of the Deutsche Bank, was among the most vocal advocates of negotiated debt reduction, well ahead of many others. It was also advocated by UNCTAD (1986) and several economists, such as myself. In Germany Thomas Kampffmeyer (1987) drew attention to Germany’s forgotten de facto insolvency (London Accord) and Indonesia, proposing this solution for SCs. The historical examples of Chapter 1 show that this is economically a perfectly sound idea. This idea met fierce opposition, not least from the IMF meanwhile advocating corporate insolvency as its ‘new approach’. A legalistic, formal killer argument came in handy: Chapter 11 cannot be applied to sovereigns, because corporate insolvency does not address sovereignty, nor governmental powers in general. This argument is right as far as it goes. But there is an easy way out. The USA knows insolvency procedures for debtors with governmental powers, so-called municipalities, granting debtor protection to municipalities and their inhabitants: Chapter 9, Title 11 US Code (USC). Reacting to this legalistic counterargument against Chapter 11, Raffer (1989) proposed internationalizing municipal bankruptcy (so-called Chapter 9) at a conference in Zagreb in 1987, proving that there is no legal argument against insolvency type protection for public debtors, including sovereigns. Designed and used for decades in the USA to solve debt...
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