The Recent Global Economic Environment: Impact on Damages and Valuation in International Arbitration
The International Comparative Legal Guide to: International Arbitration 2011
July 1, 2011
Sharon Moore Bettius
Senior Managing Director
The global economic turmoil that has permeated both developed and emerging markets has begun to abate in some areas, though the stage of recovery is still the subject of dispute among academics, analysts, and market participants.
The stock and transaction market decline and related credit crunch beginning in 2007 rippled through developed and emerging markets.
Contractual or budgeted capital and strategic projects may no longer be economically feasible ...
The contraction of private equity transactions also softened capital markets and certain volatility and fluctuations of markets rivaled that of any period since the Great Depression.
According to the U.S. Congressional Research Service, nearly all industrialised countries and many emerging and developing nations announced economic stimulus and/or financial sector rescue packages. Thus, the reaction to the global economic downturn has resulted in the easing of monetary policy, trillions of dollars of intervention and one of the most destructive impediments to economic recovery: uncertainty.
Particularly relevant in the capital and transaction markets is uncertainty about global and country-wide inflation and currency devaluation, as well as risks related to isolationism in the form of nationalisation and even the expropriation of foreign investments. These market-wide uncertainties translate into issues at the company level. For example, due to credit deficiencies, minimum order quantity conditions may be breached. Companies may no longer be able to secure necessary financing per contractual terms or agreed upon timetables. Contractual or budgeted capital and strategic projects may no longer be economically feasible, resulting in defaults on contracts and terminations.