Sovereign Debt as Investments: Dispute Resolution and Restructuring in Times of Crises

In this chapter, we highlight the controversial expansion of IIAs to include sovereign debt instruments as protected investments, leading to increased litigation and arbitration following sovereign debt defaults. We are particularly concerned that the wide definition of "investments" under financial service chapters of investment-related agreements may expose countries in the Global South to judicial challenges from holdout creditors. To contextualise our arguments, we map the approaches of the United States and the European Union to conceptualising sovereign debt in their FTAs. The objectives of the chapter are to evaluate the acknowledgement and safeguarding of sovereign debt as an investment in US and EU FTAs and to scrutinise the obligations and potential consequences for Global South countries during sovereign debt crises and restructurings. We advocate for Global South countries to be vigilant in their FTAs with these countries and ensure that future agreements incorporate the protective measures adopted in EU and US FTAs with other Global North partners. Furthermore, there is support for eliminating ISDS from IIAs due to the extensive powers it grants private corporations, including opportunistic private creditors, to challenge and override democratically enacted laws and regulations that protect public health, the environment, and workers' rights during debt restructuring.