Investor Protection vs Host State Regulatory Autonomy during Economic Crisis: Treatment of Capital Transfers and Restrictions under Modern Investment Treaties

Abstract

There is a debate amongst economists over whether foreign exchange restrictions-as a form of capital control1-drive away foreign investors, or whether they can be used to stem the damaging effects of the flow of 'hot money'; why do countries impose capital restrictions and whether such restrictions are the best available options to countries facing economic crises.2 For international investment lawyers, the main questions are: to what extent is a host state under legal duty to comply with the capital repatriation obligations of an investment treaty in the face of economic or financial crisis or threat thereof? Who should bear the risk of such economic turmoil and measures taken by the state to ameliorate the situation; should it be the private investor or the public in whose interest the restrictions were imposed? Should a determination by the national authorities on the appropriateness to impose restrictions be self-judging or subjected to an international scrutiny under relevant investment treaties and instruments such as the Articles of Agreement of the IMF, GATT and GATs rules? What margin of appreciation should be afforded a host state in an analysis of the rights of the foreign investor to repatriate capital on the one hand, and the regulatory autonomy of the host state on the other?