Chicago Journal of International Law


In January 2002, the Argentine government announced it would default on $141 billion in public sector debt-the largest default of a sovereign state in history. Having devalued its currency and gone through five presidents within a few weeks, Argentina was on a downward spiral and could no longer sustain its debt payments. Government limitations on bank withdrawals, an attempt to prevent a run on banks, resulted in violent street protests. Argentina's debt crisis renewed debate over the need for an international mechanism through which countries can declare bankruptcy. Nine months later, at the conclusion of the 2002 annual meeting of the International Monetary Fund ("IMF") and the World Bank in Washington, D.C., delegates approved the creation of a sovereign debt restructuring plan that would enable countries suffering severe financial crises to renegotiate their payment terms with creditors. The most controversial point of the proposed reforms remains the formation of an international bankruptcy court, which falls under the IMF's second track: the statutory approach. Accordingly, Part II of this Development describes the IMF's statutory approach, emphasizing the international bankruptcy court. Part III argues that from Argentina's perspective, the IMF's statutory approach would not be an effective solution to its current debt crisis due to its history of difficult relations with the IMF and the potential it creates for infringing on Argentina's sovereignty. Part IV examines the legal and market effects of the statutory approach and asserts that there are other means for restructuring debt that would have a less negative impact on the value of Argentine bonds. Three overall problems of international law posed by the statutory approach are identified in Part V: conflicts of law created if it is applied retroactively, cost-benefit analysis as it relates to the IMF's purpose, and confusion concerning the IMF's role. Part VI synthesizes the foregoing analysis and suggests that the IMF's plan is not a viable solution for Argentina. [CONT]