On February 15, the English High Court opened a new chapter in sovereign debt litigation. The judgment in Donegal v Zambia (2007) suggests that national courts may grant discretionary debt relief to heavily indebted developing countries. Donegal sued for $55 million, despite acquiring the debt for only $3.2 million at the time Zambia was scheduled to receive substantial debt relief under the Heavily Indebted Poor Countries Initiative (the HIPC Initiative). The judgment represents a partial victory for Donegal because the court affirmed Zambia's liability in principle.
Since February, the case has generated considerable controversy, due to perceived abuse of the HIPC Initiative. For a decade, the World Bank and the International Monetary Fund have coordinated international debt relief under the HIPC Initiative and the Multilateral Debt Relief Initiative. The official sector is concerned that commercial creditors might take advantage of fiscal space freed up by official debt relief. Official...