“Good” or “Bad” Sovereign Debts: New Issues for Creditors and New Distinctions for Regulators after the Covid-19 Pandemic Era?

The Covid-19 pandemic stimulated discussions about “good” debts (for investments to satisfy primary needs of citizens or to rescue national economies) or “bad” debts (to pay current public expenses): should we treat them differently in event of sovereign default? This is a crucial question especially if a sovereign borrowed money when its public finances were already distressed. But other questions are crucial as well: to what extend should financially distressed sovereigns borrow money? Becoming the investment in sovereign bonds riskier, is it acceptable that everybody — especially, retailers — could freely subscribe/ buy them? Later, in the event of default, good debts should be treated better than bad ones? Moreover, should we treat savers and other small investors such as larger financial private businesses? Sovereign defaults raise very sensible issues from the point of view of transparency, fairness, conflict of interests, protection of investor’s fundamental rights, sovereign freedom of contract, proportionality of the measures established by national or supranational legal provisions, and possibility of effectively and actively participating in the restructuring process. The “Principles on Promoting Responsible Sovereign Lending and Borrowing” elaborated by the UNCTAD and the “Basic Principles on Sovereign Debt Restructuring Processes” approved by the UN General Assembly in 2015 tried to give some very general answers, but they didn’t trace expressly a new path in national, supranational, or arbitral jurisprudence. Notwithstanding this, European Courts as well as North American judges ruled several cases during the last fifteen years applying principles consistent to those established by the UN Commission and General Assembly. The investigation of those rulings should be useful not only to make evident how much the UNCTAD/UNGA Principles should be considered actual and concretely efficient to govern sovereign financial issues, but also to draw different approaches to “good debts” and “bad debts”.