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| Could a pre-emptive sanctions tool increase pressure on Syria? | Could a pre-emptive sanctions tool increase pressure on Syria? |
| (21 days later) | |
| After throwing off repressive leaders, jubilant citizens often find themselves facing a harsh dilemma – they must repay debts incurred by the previous, illegitimate regime or risk losing credibility in international financial markets. Moreover, access to finance allows illegitimate regimes to continue their repression for far longer than they could without it. Even before the latest horrific reports about a possible chemical weapons attack in Syria, the president, Bashar al-Assad, had clearly crossed the illegitimacy threshold in the eyes of most of the world. Yet the regime is being kept afloat with arms shipments from Russia and financial support from Iran, and a future government could find itself having to repay loans that were used to purchase the weapons now being used to kill fellow Syrians. | After throwing off repressive leaders, jubilant citizens often find themselves facing a harsh dilemma – they must repay debts incurred by the previous, illegitimate regime or risk losing credibility in international financial markets. Moreover, access to finance allows illegitimate regimes to continue their repression for far longer than they could without it. Even before the latest horrific reports about a possible chemical weapons attack in Syria, the president, Bashar al-Assad, had clearly crossed the illegitimacy threshold in the eyes of most of the world. Yet the regime is being kept afloat with arms shipments from Russia and financial support from Iran, and a future government could find itself having to repay loans that were used to purchase the weapons now being used to kill fellow Syrians. |
| Convinced that preventing odious debt ex ante would be more effective and less costly than forgiving it ex post facto, the Centre for Global Development convened a working group of current and former policymakers, academics, international lawyers, and others to develop a tool to protect citizens from illegitimate regimes. Dubbed "pre-emptive contract sanctions", it is designed to deter international lenders or investors from doing business with designated illegitimate regimes. If deterrence fails, a legitimate successor government could choose to repudiate the contracts without fear of paying a price in international markets. This sanction would have been far more effective if implemented against the Assad regime two years ago, but I believe it could still be useful today. | Convinced that preventing odious debt ex ante would be more effective and less costly than forgiving it ex post facto, the Centre for Global Development convened a working group of current and former policymakers, academics, international lawyers, and others to develop a tool to protect citizens from illegitimate regimes. Dubbed "pre-emptive contract sanctions", it is designed to deter international lenders or investors from doing business with designated illegitimate regimes. If deterrence fails, a legitimate successor government could choose to repudiate the contracts without fear of paying a price in international markets. This sanction would have been far more effective if implemented against the Assad regime two years ago, but I believe it could still be useful today. |
| The basic idea for pre-emptive contract sanctions is a simple one. In the face of repression and severe human rights abuses, the United Nations, a regional body, or an ad hoc coalition of concerned countries, such as the Friends of Syria, would declare that the designated regime is illegitimate and that commercial contracts entered into after the date of the declaration will not be binding on a legitimate successor government. It would furthermore direct that these contracts will not be enforceable in the courts of those issuing the declaration and that there will be no retaliation against a future government that chooses to repudiate contracts signed after the date of the declaration. | The basic idea for pre-emptive contract sanctions is a simple one. In the face of repression and severe human rights abuses, the United Nations, a regional body, or an ad hoc coalition of concerned countries, such as the Friends of Syria, would declare that the designated regime is illegitimate and that commercial contracts entered into after the date of the declaration will not be binding on a legitimate successor government. It would furthermore direct that these contracts will not be enforceable in the courts of those issuing the declaration and that there will be no retaliation against a future government that chooses to repudiate contracts signed after the date of the declaration. |
| Ideally when severe human rights abuses are occurring, the United Nations security council would take action. But consensus is often elusive and economic sanctions, such as those imposed against Syria by the United States, European Union, Arab League and others, can be undercut by nonparticipants. Pre-emptive contract sanctions can tighten the squeeze on an illegitimate regime in these cases by raising the risk that lenders or investors from outside the sanctioning coalition will not be repaid or that contracts will not be honoured. Even if a declaration fails to deter some contracts, the successor government would not face the burden of honouring contracts signed after the date of the declaration. | Ideally when severe human rights abuses are occurring, the United Nations security council would take action. But consensus is often elusive and economic sanctions, such as those imposed against Syria by the United States, European Union, Arab League and others, can be undercut by nonparticipants. Pre-emptive contract sanctions can tighten the squeeze on an illegitimate regime in these cases by raising the risk that lenders or investors from outside the sanctioning coalition will not be repaid or that contracts will not be honoured. Even if a declaration fails to deter some contracts, the successor government would not face the burden of honouring contracts signed after the date of the declaration. |
| Pre-emptive contract sanctions declarations would be technically feasible in most cases with just the support of the United States and United Kingdom because they are the key financial and legal centres where much sovereign debt and many international contracts originate and are enforced. But pre-emptive contract sanctions would be more legitimate and credible, and less prone to abuse for narrow, self-interested reasons, if endorsed by an international body or broad coalition. The declaration could cover all transactions with the regime, or only specified contracts if there are concerns about the potential humanitarian impact. | Pre-emptive contract sanctions declarations would be technically feasible in most cases with just the support of the United States and United Kingdom because they are the key financial and legal centres where much sovereign debt and many international contracts originate and are enforced. But pre-emptive contract sanctions would be more legitimate and credible, and less prone to abuse for narrow, self-interested reasons, if endorsed by an international body or broad coalition. The declaration could cover all transactions with the regime, or only specified contracts if there are concerns about the potential humanitarian impact. |
| The sanctions would not be appropriate for every situation. Clearly the threshold for declaring a regime illegitimate must be high. And countries with natural resources that do not require large, long-term capital investments to extract, such as timber, may still find ways to sell those resources to raise revenue. In those cases, if the illicit trade cannot be controlled, a pre-emptive contract sanctions declaration may not be effective. Countries with large stocks of debt and little new borrowing might choose to default, a situation with no offsetting benefit in terms of preventing new debt, so these would also not be appropriate targets. But the concern that this tool would increase the possibility of default and raise borrowing costs for fragile states across the board is unfounded. Under the proposal, the successor government would still be responsible for any debt accrued prior to the declaration, whether the targeted regime chooses to default after a declaration or not. That in turn means that this tool will be more useful and have more protective effect for a legitimate successor government if it is invoked sooner rather than later. | The sanctions would not be appropriate for every situation. Clearly the threshold for declaring a regime illegitimate must be high. And countries with natural resources that do not require large, long-term capital investments to extract, such as timber, may still find ways to sell those resources to raise revenue. In those cases, if the illicit trade cannot be controlled, a pre-emptive contract sanctions declaration may not be effective. Countries with large stocks of debt and little new borrowing might choose to default, a situation with no offsetting benefit in terms of preventing new debt, so these would also not be appropriate targets. But the concern that this tool would increase the possibility of default and raise borrowing costs for fragile states across the board is unfounded. Under the proposal, the successor government would still be responsible for any debt accrued prior to the declaration, whether the targeted regime chooses to default after a declaration or not. That in turn means that this tool will be more useful and have more protective effect for a legitimate successor government if it is invoked sooner rather than later. |
| In Syria, this new tool may not have much coercive effect – Assad seems determined to hold on to power, whatever the cost in lives, and Russia and Iran seem equally determined to support him. But a declaration from the Friends of Syria that new contracts with the regime are illegitimate and will not be enforceable in their courts would still send a strong signal to Assad – and to those in the country supporting him – that there is no hope of ever having a normal economy. As long as he is in power, investors and lenders would face the risk that any contracts they sign after the declaration could be repudiated. It would also send a tangible signal of support to the opposition, without having to single out any particular group, and would free a legitimate successor from having to repay whatever new debts are incurred by Assad in his scramble for regime-preserving resources. | In Syria, this new tool may not have much coercive effect – Assad seems determined to hold on to power, whatever the cost in lives, and Russia and Iran seem equally determined to support him. But a declaration from the Friends of Syria that new contracts with the regime are illegitimate and will not be enforceable in their courts would still send a strong signal to Assad – and to those in the country supporting him – that there is no hope of ever having a normal economy. As long as he is in power, investors and lenders would face the risk that any contracts they sign after the declaration could be repudiated. It would also send a tangible signal of support to the opposition, without having to single out any particular group, and would free a legitimate successor from having to repay whatever new debts are incurred by Assad in his scramble for regime-preserving resources. |
| It's also important to note that these sanctions are not a panacea for dealing with corrupt and repressive regimes around the world. But they are a useful addition to the toolbox for relieving citizens of the burden of odious obligations and, perhaps, for accelerating the end of illegitimate regimes. | It's also important to note that these sanctions are not a panacea for dealing with corrupt and repressive regimes around the world. But they are a useful addition to the toolbox for relieving citizens of the burden of odious obligations and, perhaps, for accelerating the end of illegitimate regimes. |
| Kimberly Ann Elliott is senior fellow at the Centre for Global Development, follow @CGDev on Twitter | Kimberly Ann Elliott is senior fellow at the Centre for Global Development, follow @CGDev on Twitter |
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