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International Investment Law and the Stifling Threat of Debt

The object of the paper is to recover the institutional memory of the 1980s debt crisis, when the decolonized world experienced forms of tutelage at the hands of international financial institutions, so as to sketch out continuities and discontinuities with investment law’s present. The paper asks whether damage awards in investment arbitration serve functions analogous to state indebtedness in the 1980s. As during the 1980-89 debt crisis, states are expected to generate the conditions for investor confidence by, among other things, guaranteeing rights to property and to contract. State indebtedness, in both periods, places stress on government budgets and reduces the living standards of poor people, contributing to heightened inequality within and between states. The chapter begins with a social-theoretical discussion of how debt serves to curb the possibilities for political action. This is followed by a review of IMF borrowing practices in the 1980s and a discussion of the merits of comparison with contemporary investment law. The narrative frames arising during the 1980s debt crisis that continue to have resonance in the era of investment law are taken up in subsequent sections, focusing on the refrains of mismanagement, the missing development angle, shrunken policy space, and irrelevance of ability to pay. The method is predominantly qualitative although reference will be had to relevant empirical work. In the course of the discussion, the Tethyan Copper v. Pakistan (2019) ruling is periodically revisited as a specimen of how tribunals arrive at damages assessments in investment arbitration. The upshot is that indebtedness in the contemporary world serves functions similar to that in the 1980s: to constrain policy capacity in a wide range of sectors. These binding constraints serve the interests of only a small set of actors while those rendered most vulnerable by these constraints are relegated to the margins.