From my risk management role at Access Bank Ghana, involving sovereign exposures, I discuss these risks, drawing from Ghana’s international borrowing experiences.

(a) What Constitutes the Calvo Doctrine:

• The Calvo Doctrine, originating from 19th-century Argentine jurist Carlos Calvo, asserts that foreign investors/lenders in a sovereign state must submit to local laws and courts for dispute resolution, without diplomatic intervention or international arbitration.
• It constitutes a principle limiting extraterritorial jurisdiction, requiring exhaustion of local remedies. In lending, it risks biased judgments in borrower-favoring courts, countered by waivers in agreements. Ghana, in IMF dealings, navigates this via treaty protections.

(b) Other Risks Associated with Lending to a Foreign State:

• Sovereign Immunity: States may claim immunity from suit/enforcement under acts like UK’s State Immunity Act 1978; risks non-payment without waiver clauses.
• Political Risk: Includes expropriation, war, or regime change disrupting repayments; e.g., state succession may repudiate debts.
• Country/Economic Risk: Currency inconvertibility, transfer restrictions under exchange controls (Bretton Woods implications), or default due to fiscal crises, as in Ghana’s 2022 debt distress.
• Act of State Doctrine: Courts may not question foreign government acts, hindering recovery.
• Withholding Tax and Taxation Risks: Deductions on interest without gross-up clauses, mitigated by double tax treaties.
• Enforcement Challenges: Difficulty attaching sovereign assets abroad; Mareva injunctions limited.
• Practical Mitigation: Use syndicated loans with pari passu clauses, legal opinions, and insurance (e.g., MIGA). In Ghana’s post-2024 recovery, BoG’s guidelines emphasize diversification to manage these.