Settling Russia's Imperial and Baltic Debts

The 1918 Soviet default is the longest and most complex sovereign debt dispute in history. The first settlement with a major Western power came with the United Kingdom in 1986. It followed a settlement almost twenty years earlier for claims arising from the Soviet annexation of the Baltic states. We show how the two negotiations became intertwined and prompted both states to take pragmatic positions on international law. Whereas the Soviet Union showed little interest in legally justifying its inconsistent positions on debt succession, the United Kingdom developed contested legal arguments on state recognition to justify using gold belonging to the Baltic States to settle Soviet claims. In addition, we document how UK government lawyers admitted internally that Britain's involvement in the Russian Civil War had been illegal, which in turn justified very limited compensation to British claimants.