Multilateralism and legal ordering

This chapter discusses the legal construction and implications of this extra-territorial approach to sovereign debt restructurings. Untying the link to domestic contract law, and hence to the respective national jurisdictions, was not without its problems. A major case, Allied Bank (1985) underlined that the US courts, in this case, kept their jurisdiction over the debt contracts: arrangements between debtor and creditors were thus seen as private, voluntary ones, which took place “in the shadow of US law”. Creditor banks thus kept the option to turn to the courts, if they believed they were unfairly treated, contrary to what a fully-fledged supra-national regime would have implied. The other half of the chapter deals with the implications of this strategy as for power relationships and decision making within the IMF. The point, here, is that debt agreements were de facto embedded into the IMF loan documents, or Stand-By loans, which are submitted to the Executive Board for approval and disbursement. As a consequence, the banks’ support to the debt side of these packages conditioned decision-making by the representatives of all member-states. In other words, banks had a collective right of veto over the Fund’s lending decision, provided they kept a common front. This situation, of course, runs entirely against the IMF constitution (the Articles of Agreements), but also against what most of the literature on multilateral organizations has said, for decades, on agency and delegation. The (partially) balancing effect of US hegemony is then discussed.