Boer Bonds and the Doctrine of War Debts
Concentrating on just about anything during these days of the coronavirus, let alone academic writing, has been a trifle difficult. A splendid new paper on Boer Bonds by Kim Oosterlinck and Marie Van Gansbeke (here) did, however, get me focused (for a bit). And that’s in part because their paper has potentially turned upside down what I thought was an established part of customary international law. That is, the law of “War Debts.”
The international law of state succession, standard treatises will tell you, is strict. New states (and new governments) inherit the debt of predecessor states (and governments), regardless or changes in political philosophies. One of the only exceptions to this strict rule is the doctrine of War Debts. This doctrine, that I thought was implemented by the British Crown in 1900, in the wake of Boer War, says that debts incurred during hostilities by the losing party do not need to be taken on by the victor. The refusal of the United States to take responsibility for the debts incurred by the Confederacy during the Civil War is another example.
The historical materials that I looked at in my prior work were lacking in clarity, to put in mildly. And my sources – old treatises and cases -- were all secondary. In a paper from over a decade ago, here is what my co authors (Lee Buchheit and Bob Thompson) and I conjectured that the doctrine of War Debts was (full paper is here):
The British Government did not at the time articulate the rationale for this policy. Perhaps it believed the justification to be obvious. Paying the debts of a former adversary is one thing, particularly when victory brings sovereignty over the disputed territory and resources. But paying off the very loans that both delayed and added to the cost of that victory is quite another thing.
Moreover, anyone lending to a belligerent power after hostilities have begun is placing an obvious bet—an all-or-nothing bet—on the outcome of the war. This aspect of the war-debt limitation to the doctrine of state succession is significant because it introduces into the debate the reasonable expectations of the creditor when extending the loan.
Kim Oosterlinck and Marie Van Gansbeke, both financial historians, look beyond the secondary sources to primary sources – the debates among the legal advisers to the British Crown, the archival records of the investment banks, and most importantly, the prices of the Boer bonds issuer prior to and after the hostilities with the British began. The story they conclude with is different from the one than what my co authors and I conjectured a decade ago (being careful historians, they couch their bottom line with caveats about the need for further research).
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