Odious Debts or Odious Regimes?

Abstract

I INTRODUCTION Odious regimes have always been with us. That there is no silver-bullet solution that will prevent odious regimes from arising, or stymie them once they do, is evident from the plethora of responses employed by the international community once a regime's odiousness becomes clear. Trade sanctions may be used to try to choke off a malignant regime's access to weapons or other goods. In egregious cases, such as Milosevic's Serbian regime, the international community may take military action. Still another strategy, more talked about than implemented, is the one considered in this article: the use of the odious debt (or, we will argue, odious regime) to cut off, or at the least to complicate, an odious regime's access to outside funding. Current odious debt doctrine--using the term doctrine loosely, since it has never been formally adopted by a court or international decisionmaker--dates back to a 1927 treatise by a wandering Russian academic named Alexander Sack. (1) Sack surveyed the handful of occasions on which a successor regime had repudiated the obligations of its predecessor as unenforceable, including the United States' refusal to honor obligations incurred by Cuba under Spanish rule and Costa Rica's repudiation of loans used by former dictator Federico Tinoco for his personal benefit. Based on this survey, Sack suggested that debt obligations are odious and therefore unenforceable if (1) they were incurred without the consent of the populace, (2) they did not benefit the populace, and (3) the lender knew or should have known about the absence of consent and benefit. (2) Sack's tripartite definition quickly became the foundation of odious debt analysis, and it continues to be employed today, even by scholars who offer proposals quite different from the kinds of applications Sack himself seemed to have in mind. The Sack definition contemplates a debt-by-debt approach to questionable borrowing. If a loan is used to benefit the population--to build a highway or water-treatment plant, for instance--the obligation would be fully enforceable, no matter how pernicious the borrower regime. Loans that a ruler used to oppress the people, on the other hand, or diverted for his own purposes, would be unenforceable if the lender knew or should have known the loan proceeds would be misused. This nuanced approach seems to address one of the most vexing dilemmas of punishing an odious regime: the risk that sanctions will harm a nation's innocent citizens more than the odious rulers. The Sack definition is designed to nullify odious obligations without discouraging lenders from funding projects that provide genuine benefits. As attractive as it sounds, however, the debt-by-debt approach has a debilitating weakness: money is fungible. A loan ostensibly incurred for beneficent purposes often may simply free up other money for misuse. The fungibility of money seriously limits the efficacy of debt-by-debt strategies for policing the borrowing of pernicious regimes. The principal alternative to a debt-by-debt approach is to focus on the odiousness of the regime, rather than on the nature of a particular loan. The odiousness of the regime is not ignored altogether in the Sack definition. It is implicit, for instance, in the nonconsent requirement. A regime-centered approach would simply put the odiousness of the regime in the foreground. This strategy is the most promising way forward for the odious debt doctrine. To make this case, an odious regime must first be defined. Perhaps because the Sack definition does not home in directly on the regime, prior scholars have not defined what should or should not count as an odious regime. More surprisingly, even the few commentators who do call for regime-centered perspectives elide the definitional question. (3) This article attempts to fill the vacuum: a regime is odious if it engages in either systematic suppression or systematic looting. …