Which country is responsable for the external debt if half of the states of a country become independent?

5

After the lawsuit of 18 states joining Texas against some Democratic states (plus 2 counties from California/Nevada which want to become new states), and after that seeing some Texan republicans calling for Texas to leave US and form an union with other states, I wonder what would happen with the external debt of a country if close to half of the states of that country leave it. Do the leaving states retain some responsibility?

There has to be historical evidence about this, but I couldn't find it. I found the USSR split in almost exactly half (USSR population 262 millions, Russia population 137 millions by 1979, I know they split in 1991 but it gives a good idea) and they indeed had an important external debt in 1989 of 55 billion (11th in the world)

So, which country is responsible for the external debt if half of the states of a country become independent?

Pablo

Posted 2020-12-12T16:09:39.983

Reputation: 1 483

Question was closed 2020-12-12T18:06:14.267

I guess it matters if one or more parts claim to be the successor of the original, with rights to the UN Security Council seat and so on. Russia did that, and also paid the Soviet debt. – o.m. – 2020-12-12T16:42:40.463

It can be quite messy, this article offers an in-depth study of three historical precedent.

– Relaxed – 2020-12-12T17:03:22.473

See this for former Yugoslavia. I think they shared it, but I got lost in the long paper with exact details.

– Fizz – 2020-12-12T17:12:08.803

If that was ever to happen peacefully, splitting the US military or deciding what to do with things like the GPS satellite constellation could prove to be even more difficult than sharing the debt. – Relaxed – 2020-12-12T17:31:19.270

Answers

3

In theory, debt should be allocated “equitably” (1983 Vienna convention on Succession of States). In practice, it's subject to negotiation, with creditor states holding some sway over breakaway states seeking recognition and access to international institutions and financial markets.

What's interesting is that debt is only one of the issues involved and there are at least two precedents of states seeking to assume the entirety of the debt of the earlier entity in order to position themselves as the only successor state and retain all its assets and international standing. That's what happened with the Soviet Union/Russian Federation (after the failure of an earlier negotiated division between some of the successor states and amid further minor disagreements, e.g. with Ukraine) and with Yugoslavia/Serbia-Montenegro (mostly unsuccessfully).

In Yugoslavia's case for example, Slovenia continued to service (part of) the debt because it vehemently disputed the Federal Republic of Yugoslavia's (i.e. Serbia and Montenegro's) claim to be the sole legitimate successor to the Socialist Federal Republic of Yugoslavia.

Relaxed

Posted 2020-12-12T16:09:39.983

Reputation: 24 058

2This has some more details (p.192) on the failed Alma Ata agreement, which had proposed to share the Soviet debt. – Fizz – 2020-12-12T17:22:23.680

2

To go a bit back further in history, to what is still regarded as a relevant precedent,

The first example is provided by the Treaty of St. Germaine-en-Laye, providing, inter alia, for the apportionment of the debts among the successor states of the Austro-Hungarian Empire after the First World War. According to article 203 each of the successor states was to assume the portion of secured debt on immovable property falling under its sovereignty; as regards unsecured debt, the apportionment of the total debt existing on July 28, 1914, was to be accomplished on the basis of the ratio between the average of the three financial years 1911 to 1913 of such revenues of the distributed territories.

So that sharing was done on the basis of ability to repay. But coming to such an agreement requires parties to come to a mutual understanding. The more recent examples such the dissolution of Yugoslavia and to a lesser extent that of the USSR were more messy as sharing talks broke down. (The case of the USSR was essentially resolved by creditors agreeing with Russia's position. I'm not sure if the Yugoslavia case been fully resolved.)

Fizz

Posted 2020-12-12T16:09:39.983

Reputation: 76 605