The Sanctity of Debt and Insolvent Countries: Defense of Debtors in International Loan Agreements

by Thomas Wälde

Introduction

This article discusses defenses available to the debtor against enforcement of international loan agreements, in particular the eventual defenses of force majeure and change of circumstance. A review of available literature indicates that is topic is unusually unpopular with legal writers - though certainly not, since time immemorial, with debtors. While there is voluminous legal writer on excuses for nonperformance and contract renegotiation is international commercial agreements, there seems to be little extensive study of excuses for debtors in international loan agreements.

This is somewhat suprising, given that default on international loans, since their origin in the late Middle Ages, as been quite common, accordingly we are limited to exploring legal writing that generally is cursory and reflects a rather negative attitude to the applicability of debtors defenses, statements made by the few countries that have repudiated foreign debt (the Soviet Union in 1917 or Cuba after 1961, for example), remarks that sometimes arise today when foreign debt is discussed in heavily indebted developing countries, and the implication of relatively few judicial and arbitral decisions.

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