Building Economic Sovereignty: “Can National Legislation End the Debt Trap?”

Sovereign debt, while an essential instrument for financing for development, has become a double-edged sword for many countries, especially in the Global South. The lack of robust legislative frameworks to manage public borrowing has driven nations into cycles of unsustainable debt, undermining their economic sovereignty and social development. Yet, because of the lack of international debt workout mechanisms, and since the coordination frameworks in place are inefficient and costly, most governments avoid debt restructurings at all costs, even if it means sacrificing development goals and climate action. As a result, countries currently may not default on their debt, but they default on their development.

During the IMF–World Bank Annual Meetings, a roundtable on “Advancing Sovereign Debt Governance: Legislative Pathways to End the Debt Trap” was convened by the International Trade Union Confederation, Friedrich-Ebert-Stiftung, Suramericana Visión, and Latindadd, to discuss one clear but often overlooked solution to the global debt crisis: stronger domestic legislation for sovereign debt management. Policy experts, civil society organizations, and advocates exchanged perspectives on improving debt governance. Martín Guzmán, Columbia University professor and former Economy Minister of Argentina, explained that sustainability, when supported by legislation, helps establish a framework for greater transparency for debt management. However, he noted that many countries continue to borrow with limited public scrutiny, which can undermine their sovereignty—particularly when loans are contracted under foreign law. Patricia Miranda of Latindadd and representatives from organizations such as Debt Justice, Oxfam, Jubilee USA Network, CAFOD, Boston University, and the AFL-CIO, together underscored a shared view: to achieve debt sustainability worldwide, debt has to be more transparent, accountability has to improve, and coordination on the borrowers’ side has to be enhanced.

Many developing countries lack robust legal frameworks to govern their borrowing and debt management practices, leaving them vulnerable to financial shocks, political instability, and governance challenges. Effective legislative oversight thus plays a key role in mitigating these risks. In this vein, enhancing national legislation for sovereign debt becomes a crucial topic for several economic, legal, and developmental reasons. It forms the foundation of effective fiscal management and sustainable development, especially for nations with limited resources.

The increased debt vulnerabilities in the Global South have brought debt transparency into sharp focus. Factors such as the growing presence of a new creditor landscape and the increasing use of complex financial instruments have limited public access to information about loan agreements. This lack of transparency also hinders legislative oversight and public scrutiny, impeding accountability. Participants in the roundtable emphasized the importance of debt transparency for enabling policymakers to make informed decisions, and empowering citizens to hold governments accountable.

It is common for right wing governments that are seen as friendly by the market to borrow significant amounts in foreign currency and when things do not go well, they leave a legacy of unsustainable debt that burden the citizens' future. Furthermore, we have recently seen loans by the IMF that create a similar dynamic - even politically motivated loans that affect the workings of democracy. Societies can enact legislation to defend against such situations.

Argentina’s recent experience with Guzmán’s Law shows how domestic legislation can reshape debt policy dynamics. This law requires congressional approval 1) before the government can issue bonds in foreign currency under foreign law, and 2) before approving IMF-supported programs. The aim is to ensure democratic oversight and curb unsustainable borrowing. By strengthening parliamentary participation and accountability, citizens move closer to the decisions that shape their country’s financial future. The ongoing discussion around the establishment of a “Borrower’s Club” and like initiatives prove that countries in the Global South should be more involved in the crafting of fairer global rules.

In conclusion, the growing movement to build national capacity, share lessons, and enact strong domestic legislation isn’t just a technical exercise. It is an expression of economic sovereignty that can help to end the debt trap.