In
international law
International law, also known as public international law and the law of nations, is the set of Rule of law, rules, norms, Customary law, legal customs and standards that State (polity), states and other actors feel an obligation to, and generall ...
, odious debt, also known as illegitimate debt, is a legal theory that says that
the national debt incurred by a
despotic regime
In politics, a regime (also spelled régime) is a system of government that determines access to public office, and the extent of power held by officials. The two broad categories of regimes are democratic and autocratic. A key similarity acros ...
should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the government that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under
coercion
Coercion involves compelling a party to act in an involuntary manner through the use of threats, including threats to use force against that party. It involves a set of forceful actions which violate the free will of an individual in order to i ...
.
Whether or not it is possible to discharge debts in this manner is a matter of dispute.
History
The concept has antecedents dating back to the 1800s and support from diverse fields such as
economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and interac ...
,
philosophy
Philosophy ('love of wisdom' in Ancient Greek) is a systematic study of general and fundamental questions concerning topics like existence, reason, knowledge, Value (ethics and social sciences), value, mind, and language. It is a rational an ...
,
political science
Political science is the scientific study of politics. It is a social science dealing with systems of governance and Power (social and political), power, and the analysis of political activities, political philosophy, political thought, polit ...
,
history
History is the systematic study of the past, focusing primarily on the Human history, human past. As an academic discipline, it analyses and interprets evidence to construct narratives about what happened and explain why it happened. Some t ...
, and
law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior, with its precise definition a matter of longstanding debate. It has been variously described as a science and as the ar ...
.
The concept of odious debt was formalized in a 1927 treatise by
Alexander Nahum Sack, a
Russia
Russia, or the Russian Federation, is a country spanning Eastern Europe and North Asia. It is the list of countries and dependencies by area, largest country in the world, and extends across Time in Russia, eleven time zones, sharing Borders ...
n émigré legal theorist. It was based on two 19th-century precedents—
Mexico
Mexico, officially the United Mexican States, is a country in North America. It is the northernmost country in Latin America, and borders the United States to the north, and Guatemala and Belize to the southeast; while having maritime boundar ...
's repudiation of debts incurred by
Emperor Maximilian, and the denial by the
United States
The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
of
Cuba
Cuba, officially the Republic of Cuba, is an island country, comprising the island of Cuba (largest island), Isla de la Juventud, and List of islands of Cuba, 4,195 islands, islets and cays surrounding the main island. It is located where the ...
n liability for debts incurred by the
Spanish colonial regime.
Sack wrote:
When a despotic regime contracts a debt, not for the needs or in the state's interests, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently, it falls with the regime's demise. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfill one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State. Odious debts, contracted and utilized for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation that has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.
Sack theorized that such debts are not enforceable when (1) the lender should have known that (2) the debt was incurred without the consent and (3) without benefit to the populace. There are many examples of similar debt repudiation.
Chief Justice
William Howard Taft
William Howard Taft (September 15, 1857March 8, 1930) served as the 27th president of the United States from 1909 to 1913 and the tenth chief justice of the United States from 1921 to 1930. He is the only person to have held both offices. ...
, acting as an
arbiter, used the doctrine in 1923 to find that
Costa Rica
Costa Rica, officially the Republic of Costa Rica, is a country in Central America. It borders Nicaragua to the north, the Caribbean Sea to the northeast, Panama to the southeast, and the Pacific Ocean to the southwest, as well as Maritime bo ...
did not have to pay the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...
debts incurred by the
Federico Tinoco Granados regime.
Despite such rulings, Mitu Gulati argues that odious debt is not part of
international law
International law, also known as public international law and the law of nations, is the set of Rule of law, rules, norms, Customary law, legal customs and standards that State (polity), states and other actors feel an obligation to, and generall ...
because "
national or international tribunal has ever cited Odious Debt as grounds for invalidating a sovereign obligation."
[Mitu Gulati, Duke University School of Law; Ugo Panizza, The Graduate Institute Geneva and CEPR. The Hausmann-Gorky Effect. Working Paper No. HEIDWP02-2018. Graduate Institute of International and Development Studies, International Economics Department.]
Reception
Patricia Adams, executive director of
Probe International, a
Canadian
Canadians () are people identified with the country of Canada. This connection may be residential, legal, historical or cultural. For most Canadians, many (or all) of these connections exist and are collectively the source of their being ''C ...
environmental and public policy advocacy organization and author of ''Odious Debts: Loose Lending, Corruption, and the Third World's Environmental Legacy'', stated: "by giving creditors an incentive to lend only for purposes that are transparent and of public benefit, future tyrants will lose their ability to finance their armies, and thus the
war on terror and the cause of world peace will be better served."
In a
Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch ...
policy analysis, Adams suggested that debts incurred by
Iraq
Iraq, officially the Republic of Iraq, is a country in West Asia. It is bordered by Saudi Arabia to Iraq–Saudi Arabia border, the south, Turkey to Iraq–Turkey border, the north, Iran to Iran–Iraq border, the east, the Persian Gulf and ...
during
Saddam Hussein
Saddam Hussein (28 April 1937 – 30 December 2006) was an Iraqi politician and revolutionary who served as the fifth president of Iraq from 1979 until Saddam Hussein statue destruction, his overthrow in 2003 during the 2003 invasion of Ira ...
's reign were odious because the money was spent on weapons, instruments of repression, and palaces.
A 2002 article by economists
Seema Jayachandran and
Michael Kremer
Michael Robert Kremer (born November 12, 1964) is an American Development economics, development economist currently serving as university professor in economics at the University of Chicago and director of the Development Innovation Lab at th ...
renewed interest in this topic.
They propose that the idea can be used to create a new type of economic sanction to block further borrowing by
dictators
A dictator is a political leader who possesses absolute Power (social and political), power. A dictatorship is a state ruled by one dictator or by a polity. The word originated as the title of a Roman dictator elected by the Roman Senate to r ...
.
Jayachandran proposed new recommendations in November 2010 at the 10th anniversary of the Jubilee movement at the
Center for Global Development
The Center for Global Development (CGD) is a nonprofit think tank based in Washington, D.C., and London that focuses on international development.
History
It was founded in November 2001 by former senior U.S. official Edward W. Scott, directo ...
in
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly known as Washington or D.C., is the capital city and federal district of the United States. The city is on the Potomac River, across from Virginia, and shares land borders with ...
Subsequently, the loan sanctions model has been adopted by the Centre for Global Developments and has been the base for a number of further suggestions. Some think the doctrine could aid
international development
International development or global development is a broad concept denoting the idea that societies and countries have differing levels of economic development, economic or human development (economics), human development on an international sca ...
. Others think that the doctrine should allow even more kinds of debt to be canceled.
Application
After acquiring Puerto Rico through the
Spanish–American War
The Spanish–American War (April 21 – August 13, 1898) was fought between Restoration (Spain), Spain and the United States in 1898. It began with the sinking of the USS Maine (1889), USS ''Maine'' in Havana Harbor in Cuba, and resulted in the ...
, the United States refused to pay the colony's creditors, asserting they held odious debt.
In December 2008,
Ecuador
Ecuador, officially the Republic of Ecuador, is a country in northwestern South America, bordered by Colombia on the north, Peru on the east and south, and the Pacific Ocean on the west. It also includes the Galápagos Province which contain ...
ian President
Rafael Correa
Rafael Vicente Correa Delgado (; born 6 April 1963) is an Ecuadorian politician and economist who served as the 45th president of Ecuador from 2007 to 2017. The leader of the PAIS Alliance political movement from its foundation until 2017, Corr ...
attempted to default on Ecuador's
national debt
A country's gross government debt (also called public debt or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occ ...
, calling it illegitimate odious debt, because corrupt and despotic prior regimes contracted it. He succeeded in reducing the price of the debt letters before continuing paying the debt.
After the overthrow of
Haiti
Haiti, officially the Republic of Haiti, is a country on the island of Hispaniola in the Caribbean Sea, east of Cuba and Jamaica, and south of the Bahamas. It occupies the western three-eighths of the island, which it shares with the Dominican ...
's
Jean-Claude Duvalier in 1986, there were calls to cancel Haiti's debt owed to multilateral institutions, calling it unjust odious debt, and Haiti could better use the funds for education, health care, and basic infrastructure. As of February 2008, the Haiti Debt Cancellation Resolution had 66 co-sponsors in the
U.S. House of Representatives. Several organizations in the United States issued
action alerts around the Haiti Debt Cancellation Resolution, and a Congressional letter to the
U.S. Treasury,
including Jubilee USA, the
Institute for Justice & Democracy in Haiti and Pax Christi USA.
See also
*
Debt of developing countries
The debt of developing countries usually refers to the external debt incurred by governments of developing country, developing countries.
There have been several historical episodes of governments of developing countries borrowing in quantitie ...
*
Debt relief
*
Domestic liability dollarization
*
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment (Amendment XIV) to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments. Considered one of the most consequential amendments, it addresses Citizenship of the United States ...
*
Haiti's external debt
*
Jubilee USA Network
*
Moral hazard
In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong. For example, when a corporation i ...
*
Sovereign debt
A country's gross government debt (also called public debt or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occ ...
*
Sovereign default
A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments (or receivables) may either be accompanied by that government's formal declaration that it wil ...
References
{{debt
Debt
International law
Legal doctrines and principles
Philosophy of economics
Power (social and political) theories
Coercion
Dictatorship
Economic problems
Human rights
Anti-corruption activism
Political repression
Social ethics
International relations
Law and economics