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The Early Days of Sovereign Insolvency

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Chapter Summary

By way of an introduction, this chapter presents the initial idea of sovereign insolvency as a non-legal issue. In early instances of sovereign insolvencies, debtor countries' creditors, and the countries of origin of those creditors, devised various ways to discourage default and to recover the debt. A classic example of former methods of debt recovery is that of Egypt. The position, which denies that sovereign debt should give rise to any legal obligations, is also associated with Drago. The contention is that there is no law whatsoever governing the case of sovereign insolvencies. The state's obligation to repay its debt is one of honour. It is argued that, since states are sovereign entities, their debt is an unenforceable obligation; since creditors contracted freely with the states, knowing of their sovereign status, they ought also to have recognised the risk of default when they extended money to the debtor state.

Keywords: legal obligations; non-legal issue; sovereign debt; sovereign insolvency

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