From Lawsuits and Empire: On the Enforcement of Sovereign Debt in Latin America

https://scholarship.law.duke.edu/lcp/vol73/iss4/5/

Starting with the 1976 Foreign Sovereign Immunity Act (FSIA), legal changes eroded the doctrine of sovereign immunity. In 1992, the Supreme Court decided Republic of Argentina v. Weltover, holding that sovereign bond issues in the United States qualified as commercial activities.20 Sovereign immunity, therefore, did not automatically apply. Weltover ushered in a series of attempts by creditors to use the legal system to create a regime not unlike Dollar Diplomacy, only now enforced by court orders rather than by executive decisions.21 Distressed funds (also known as “vulture funds”) began to purchase defaulted sovereign debt on the open market, and then subsequently sued the defaulting governments. Courts deciding in favor of the funds enforced those decisions by seizing assets or by attaching government revenues or other payments that passed through their jurisdictions, in effect imposing a “virtual blockade” that was difficult for defaulting countries to avoid.22 Creditors went after oil sales, privatization revenues, and airline landing fees. In May 1995, a New York court sided with the Dart family over defaulted Brazilian debt; Brazil settled.23 In 1995, Elliott purchased Panamanian debt with a face value of $28.75 million for approximately $17.5 million. In July 1996, Elliott sued Panama seeking full payment of the debt.24 When Panama balked at paying, a judge attached the proceeds from the privatization of the country’s telecoms company; Elliott ultimately received $71 million in payments, including interest.25 In 1999, a Brussels appellate court agreed to attach interest payments on Peru’s Brady bonds.26 The Peruvian government paid Elliott $63.5 million.27 More suits followed.