The Evolution of an Open Norm in ‘Localised’ Contexts?*
Dania Thomas and Javier García-Fronti
Since the Argentine debt crisis in 2001 (and the settlement of 2005) the influence and credibility of the official sector especially the IMF is at a historical low. It is in this context that changes in sovereign bond contracts, for instance, the widespread adoption of collective action clauses raise questions about future debt restructurings. Market participants, especially creditors overwhelmingly believe that contract modification is important but only ‘at the margins’. If contractual change is marginal, what then are the mechanisms that will ensure fair and orderly debt workouts?In the absence of a global, multilateral, regulatory framework for sovereign debt restructuring, our examination of changes in the period leading up to the Argentine settlement and after, reveals that market participants may instead be relying on good faith to do the job with the court recognising similar expectations. Good faith, though entrenched as a legal norm in several domestic jurisdictions, such as Germany and the U.S., is a relative newcomer to sovereign debt workouts. This evolving norm is not institutionally embedded and unlike the domestically entrenched version, is not a legal rule with specific requirements that needs to be fulfilled. We conclude by showing that good faith is an open norm ‘localised’ inter alia in formal and informal contexts in which market participants interact with each other and therefore conceptually similar to Treu und Glauben as recognised in section 242 BGB.
Keywords: Sovereign debt, good faith, open norm, localised context
*Acknowledgements: We are grateful for comments by Sayantan Ghosal, Chris Hughes and Marcus Miller. The first author acknowledges financial support from CSGR, University of Warwick. The second author acknowledges financial support from the ESRC Research Programme ‘World Economy and Finance’ ( RES-165-25-0006) and the administrative support of the Department of Economics, University of Warwick. The usual disclaimer applies.
Dania Thomas Javier García-Fronti
School of Law, Keele University and University of Buenos Aires and
CSGR, University of Warwick University of Warwick