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IPFS News Link • Secession/States

After a National Divorce, Where Does the Debt Go?

•, by Ryan McMaken

The idea is forwarded with varying levels of seriousness, but the fact that talk of secession is increasingly done openly and repeatedly suggests increasing strength for what the political scientists call "centrifugal" forces. That is, cultural and political trends increasingly point toward growing separation and away from increased union.

But even those willing to entertain the idea of national separation will bring up many practical questions about how such a separation would actually take place. One of the most common questions among these people is: what happens to the government's debts in case of secession?

Fortunately, there are some historical examples that help shed some light on what does happen to debts following national break-ups. In most cases, what happens to the debt comes down to negotiations among successor states. The ideal model in these cases is probably the Czech-Slovak separation in 1992. But other examples exist as well, as in the post-Soviet states and in Latin America.

In many of these cases, what happens to the debts depends not only on negotiations between the successor states, but also on negotiations with the third-party states who see themselves as representing a large number of creditors hoping to get their money back. That is, third-party regimes often intervene in secession disputes to pursue arrangements that will increase the odds of repayments of at least a sizable portion of the debt in question.