THE SANCTITY OF SOVEREIGN LOAN CONTRACTS AND ITS ORIGINS IN ENFORCEMENT LITIGATION

"While the Costa Rican Banks make light of 'sanctity of contracts' and argue that litigation is but a theoretical right which disappears when a 'friendly' country defaults on its debt obligations, that is simply not the law."1

"Whenever a Court has felt what it believed to be the pangs of justice

I. INTRODUCTION

This Article examines sovereign debt enforcement litigation from a new perspective. It makes the case that while there is a burgeoning academic interest surrounding sovereign debt, there is little or no examination of the sanctity of contracts doctrine which, since the mid-1980s, became the reigning paradigm underlying sovereign debt enforcement litigation. Consistent with this doctrine, an especially strong rule of creditor rights was established under which the baseline for acceleration of creditor rights became simple default. This contrasts with the prior rule which provided that renunciation or repudiation of a debt by a sovereign borrower was a precondition for accelerating payment. Under thenew "hair-trigger rule" of enforcement or acceleration, courts refrain from intervening on behalf of sovereign borrowers on the premise that such non-intervention is required to maintain judicial neutrality in the face of a freely negotiated contract. Sovereign debt litigation is therefore rooted in a contractual model where judicial inaction in the face of an otherwise excusable default is treated as neutral and legally unobjectionable.