International Investment Law Protection of Foreign Portfolio Investments: ‘To be, or not to be’?

The view that foreign portfolio investments (FPI) are investments within the contemplation of the international investment law regime led to a foreign ETF holder bringing an investment arbitration claim challenging Malaysia’s foreign exchange policy to deal with the Asian Financial Crisis. This same belief led to tens of thousands of foreign holders of Argentine sovereign bond security interests bringing various investment arbitration claims against Argentina’s public expenditure policy decision to restructure its public debt during the Argentine economic crisis. Thus, the sustenance of this belief can lead foreign holders of emerging/frontier economies’ FPIs to challenge their macroeconomic measures for dealing with economic distress or full-blown economic crisis. Hence the relevance of this thesis. This thesis argues against the extension of international investment law recognition and protection of FPIs in emerging and frontier economies for policy and legal reasons. Firstly, though quite arguable, unrestricted FPI movement seems to be correlated with economic distress or crisis. Bolstering this narrative is the IMF’s recognition of the necessity for imposing some controls, even pre-emptive controls on FPI movement. Secondly, the international investment law regime is infamous for its effect of constraining regulatory autonomy. Extending investment law protection will only serve to constrain macroeconomic independence and flexibility with severe consequences during economic distress and crisis. Thirdly, FPIs are not investments within the contemplation of the ICSID Convention and ought not to be accorded jurisdictional recognition. The potential for investment law protected FPI to constrain macroeconomic policymaking can detract from economic development contrary to the objectives of ICSID. Finally, even if jurisdiction is found the substantive protection standards considered are likely to fall short. Also, a balancing of the competing rights between host States and FPI will tilt in favour of the host States, owing to the greater costs that would be incurred if it tilts otherwise.