Odious Debt Research Articles

The Odious Debt Doctrine: The Equitable Rule

Abstract The odious debt doctrine was envisaged by the Russian jurist Alexander Sack as an exception to the passing rule of a debt in case of state and government succession. An analysis of the practice indicates that this exception was often accompanied by some equitable solution. Although the 1983 Vienna Convention did not acknowledge the doctrine, the equitable distribution of assets and liabilities as a method of settling disputes may allow an application of the doctrine in disguise. This equitable method of settling could come into play if the doctrine found application beyond the strict boundaries of state succession. Such a step would imply the formalization of the doctrine in national legislation, with the result that a loan agreement tainted with odiousness would be illegal and unenforceable. Nevertheless, in common law countries, the laws of which usually govern financial transactions, a claim for recovering what transferred under an illegal contract could be denied based on public policy considerations. This denial of restitution would refrain these countries, traditionally sensitive to creditors’ rights, from acknowledging the doctrine in their legal systems. To overcome this impasse, the formalization of the doctrine should include an equitable approach based on the benefit for the population. This equitable approach would reflect the practice of state and government succession on which the doctrine is usually grounded.

Odious Debts: The Power of a Mythical Doctrine

Odious Debts: The Power of a Mythical Doctrine

Correction to: Odious Debt

Correction to: Odious Debt

Odious Debt.

Public international law does not encompass external sovereign debt. In particular, the current status of 'odious debt', which may also be termed 'illegitimate debt', in international law epitomizes the weakness of international law with respect to external sovereign debt. Odious debt is subject to politics and ad hoc relations on the international stage. By and large, the law engages with external sovereign debt on the national level-e.g., via the national laws and the national courts of financial centers. In the event of a dispute regarding external sovereign debt, it is very rare that international law or international adjudication deal with external sovereign debt.

A Sankarian Perspective on the IMF Loans to South Africa – ‘Debt as a Cleverly Organised Reconquest of Africa’

Abstract The COVID-19 pandemic that continues to ravish the world economies and snatch lives of millions of people across the world has without a doubt exacerbated the already fragile over-indebtedness of many countries globally, more especially in Africa. South Africa was used as a case study to better understand the International Financial Institutions and debtor countries nexus through the prisms of Sankarian Thought and philosophy concerning debt and loans. This was because South Africa had not borrowed money from the twin IFIs, IMF and the World Bank, for many years until recently when the pandemic struck the world. It is useful to understand why the multilateral financial institutions such as the IMF, the World Bank and others had to be the last resort in the fight against this pandemic by the South African government. The role of these two main predators that have since flag independence of Africa been the engineers and custodians of debt neo-enslavement of African countries is the common thread in this article. As Sankara argued and was eventually assassinated for, in part, lobbying African States to form a united front in repudiating illegitimate debt, the solution to the African development challenge does not lie in acquiring more aid and loans. It lies in harnessing their own resources and optimally using them to uplift the lives of their people ethically, and that is the only way Africa would eventually be able to call its soul its own. Amongst others, the paper found that a strong case can be made by many African countries for repudiation of odious debt, however, the same cannot be argued for South Africa.

The Odious Haitian Independence Debt

Abstract This article introduces the Haitian Independence Debt of 1825 to the odious debt and sovereign debt literatures. We argue that the legal doctrine of odious debt is surprisingly and perhaps indefensibly narrow, possibly because of historical contingency rather than any underlying logic or principle. The story of the Haitian Independence Debt of 1825 serves as an illustrative case study. In the context of telling that story, we provide estimates of the evolution of Haiti’s external debt-to-GDP ratio over 1825–2020, and discuss the implications of the independence debt for the economy of Haiti. We conclude by discussing the implications of Haiti’s Independence Debt for the doctrine of odious debt and the possibilities for Haiti to recover compensation.

The Age of Odious Debt: Money, Constitutions, and the Making of Latin America. A Research Note

The Age of Odious Debt: Money, Constitutions, and the Making of Latin America. A Research Note

Odious Debts: Issues in Law and Politics

Odious sovereign contracts inhibit developing country growth. They cause money and resources to be improperly transferred from one country to an undeserving one. Think tanks and civil society actors have long suggested that Indonesia is plagued by a sizeable odious sovereign contract account. Policy makers and scholars continue to grapple with how the odious debts doctrine may operate in law to curb this important problem. Taking into account the lack of transparency in an odious contract setting, this paper proposes a new approach premised on principles of transparency, accountability and citizen participation in public contracts. In design, it proposes the following: 1) the creation of ex-ante obligations and a public website on which financiers can disclose the key terms of their contractual arrangements with a sovereign government. This website enables a financier to signal the nature of their engagement with a sovereign counterpart; 2) the creation of an ex-post tribunal, in which private citizens have standing, to adjudicate the odiousness of a disputed sovereign contract. In the tribunal’s deliberations, disclosure by a financier and compliance with ex-ante obligations weighs in favour of a presumption of legitimate contracting, whereas non-disclosure lends itself to a presumption of odiousness. This new approach has the right incentives for participation. It will revolutionize the currency of international law and international institutions, by giving the public a mechanism to eke out odiousness in transnational sovereign dealings. It can have important implications for Indonesia and more generally, the future of transnational trade and finance.

The Odious Haitian Independence Debt

This article introduces the Haitian Independence Debt of 1825 to the odious debt and sovereign debt literatures. We argue that the legal doctrine of odious debt is surprisingly and perhaps indefensibly narrow possibly because of historical contingency rather than any underlying logic or principle. The story of the Haitian Independence Debt of 1825 serves as an illustrative case study. In the context of telling that story, we provide estimates of the evolution of Haiti’s external debt-to-GDP ratio over 1825-2020, and discuss the implications of the independence debt for the economy of Haiti. We conclude by discussing the implications of Haiti’s Independence Debt for the doctrine of odious debt and the possibilities for Haiti to recover compensation.

The Emperor's Old Bonds

Tracy Alloway’s recent article in Bloomberg has suggested that Trump’s trade war may finally provide relief to American holders of defaulted, pre-1950s Chinese bonds. Here, we examine the hurdles set before these bondholders, namely establishing jurisdiction over the People’s Republic of China as sovereign and the long-lapsed statute of limitations. We also evaluate the Chinese government’s possible recourse. The key takeaways from our investigation: To establish jurisdiction in the U.S., the bond must be denominated in U.S. Dollars or state a place of performance within the country. To overcome the long-expired statute of limitations, and win an equitable remedy, it must be shown that the PRC not only violated an absolute priority or pari passu clause, but also that they are a “uniquely recalcitrant” debtor. Finally, despite China’s commitment to the odious debt doctrine, the doctrine is unlikely to provide meaningful legal protection in the event of an otherwise successful suit. Overall, it is a difficult suit to bring, but through our investigations we have discovered one issue in particular which holds the greatest danger — or perhaps the greatest promise: the 1919 Gold Bond.

The Law and Political Economy of Mozambique’s Odious Debt

The thesis of this paper is a very simple one. Mozambique should not repay the loans which three of its state-owned enterprises took out in 2013-2014 in the context of a gigantic scheme of corruption. I will provide two types of reasons for this conclusion. The first type is rather legal and straightforward. Debts incurred due to corruption and in violation of the constitution do not need to be repaid. The second type is of a more contextual character. While the loans in question are void as a matter of law, they reveal certain characteristic traits of our current worldwide financial system, which I believe must be changed. An oversupply of liquidity in capital-rich countries may have devastating effects for capital-importing, developing countries. Not the interest of creditors, but the needs of borrowers should determine sovereign lending. The current legal order governing sovereign debts needs to be adjusted to this end.

King Leopold's Bonds and the Odious Debts Mystery

In 1898, in the wake of the Spanish-American war, Spain ceded the colony of Cuba to the United States. In keeping with the law of state succession, the Spanish demanded that the U.S. also take on Spanish debts that had been backed by Cuban revenues. The Americans refused, arguing that some of those debts had been utilized for purposes adverse to the interests of the Cuban people. This, some argue, was the birth of the doctrine of “odious debts”; a doctrine providing that debts incurred by a non-representative government and utilized for purposes adverse to the population do not need to be repaid by successor regimes. This Article tests the historical evidence in favor of the birth of the odious debts doctrine at the turn of the twentieth century by considering the treatment of perhaps the archetypal odious debt: the debt that Belgium’s King Leopold undertook to finance his horrific exploitation of the Congo Free State (“CFS”). In 1908, Leopold was forced to transfer sovereignty over the CFS to Belgium. If the doctrine of odious debts existed at the time, we should see evidence of it in the public debate about whether Belgium was obliged to take on King Leopold’s debts. Based on original archival research into political debates, litigation regarding Leopold’s estate, and contemporary prices and yields of Leopold’s bonds, we see no such evidence.

Odious Debts and International Fair Trade

I argue that one of the most important reasons why international trade has been unfair is that weaker parties in trading negotiations have been illegitimately forced to accept terms of trade that they would not otherwise accept under normal circumstances, and these terms of trade have been harmful for them. Odious debts are at the center of this kind of injustice. Odious debts are debts that are not binding for the citizens of a country, as they were incurred by illegitimate rulers in the name of all the citizens, but used for private purposes, such as personal benefit, or to oppress the population. Despite the fact that these debts are not binding—that is, that they should not be repaid—creditor countries have coerced debtor countries to repay them and, more importantly for the purposes of this article, they have taken advantage of the fact that countries are burdened with these debts by tailoring trade agreements in their favor. They have done so by telling debtor countries that, unless they trade under terms that creditor countries want; non-binding (i.e. odious) debts will be enforced. The resulting state of affairs is not simply a convenient one for creditor countries and an inconvenient one for debtor countries. It is also an immoral one.

Denouncing Odious Debts

Economists have suggested it was optimal to signal the odious character of bonds when they were issued. However, since the odious debt doctrine has not been recognized by any court, one could argue that denouncing odious debts is useless. Exploiting a unique historical episode, this paper quantifies the impact of protests on odious debts. In 1906, the Russian government floated a bond in Paris to cover the costs of its war against Japan but also to raise money to crush the political movements wishing to reform Russia’s political system. Issued without parliamentary consent, this loan met with fierce opposition. Press campaigns in Great Britain, France and Germany denounced its odious character. If failure or success is determined solely by the ability to prevent a loan from being issued, then the campaign failed. We argue, however, that failure or success should be determined in light of the financial costs imposed on the issuer for future loans and even the ability to force a postponement of these loans. We show that these campaigns increased the yields of all Russian bonds traded in Paris, and thus Russia’s future borrowing cost. Yields on the 1906 loan, which was specially targeted by the campaigns, rose even more. However, once the press campaigns stopped, yields experienced a declining trend, highlighting the important role the press may have on odious debts.

Modelling for a living: two-level games and rhetorical action in the foreign debt negotiations of post-revolutionary Tunisia

ABSTRACTThis article discusses the global-level financial constraints that shape Tunisia's foreign policy, this debtor state's international agency and the way its post-2011 authorities have managed/negotiated the issue of foreign debt both internally and internationally, including the ‘odious debt’ inherited from the Ben Ali dictatorship and the renewed borrowing necessities of the country. Viewed against the backdrop of the geopolitical and economic vulnerability that has driven Tunisian foreign policy throughout history, foreign debt is shown to have featured as a highly politicised issue in the domestic sphere in 2011–2012, until the February 2013 crisis enabled an increasingly technocratic government to halt the parliamentary bill calling for a debt audit and to break the taboo on new borrowing from the IMF. On the external front, a distinction is drawn between an adaptive/compliant and a resistant type of foreign policy agency, which can be observed in the international action and rhetoric on this matter deployed by Essebsi and Marzouki respectively. Adaptive/compliant foreign policy agency is technocratic and de-politicising in nature, as it attempts to isolate or blackbox domestic politics when negotiating Tunisian foreign debt abroad – while paradoxically exploiting an ideal representation of Tunisia's democratic transition (role modelling) in order to demand greater international financial support. Resistant foreign policy agency is more openly political inasmuch as its builds on post-revolutionary domestic politics and contestation. Although the latter approach bore some material fruit in the form of debt conversion measures by the country's major bilateral creditors, adaptive/compliant foreign policy agency prevailed from 2013 onwards.

The Doctrine of Odious Debt in International Law. A Restatement, written by Jeff King

The Doctrine of Odious Debt in International Law. A Restatement, written by Jeff King

External debt among HIPCs in Africa: accounting and panel VAR analysis of some determinants

PurposeThe management of external debt among highly indebted poor countries (HIPCs) in Africa still remains a challenge despite numerous packages and attempts to ameliorate the consequences of such odious debt. The purpose of this paper is to establish the factors that contribute to the growth rate of external debt and how these factors respond to shocks to external debt growth rate in Africa.Design/methodology/approachData were obtained from 24 African countries and analyzed using a panel vector autoregression estimation methodology.FindingsThe study found that external debt growth rates respond positively to unit shock or changes in government investment spending, consumption spending, and domestic borrowings over a long period of time. In the medium term, external debt growth rates respond negatively to shocks in tax revenue, inflation, and output growth rates. The paper also provides empirical support that external debt may be consumed rather than invested among HIPCs in Africa.Research limitations/implicationsThe findings of this paper are limited to only HIPCs in Africa.Practical implicationsThis study has some few debilitating implications for external debt management among HIPCs in Africa. First, the paper suggests that debt repayment may be a problem. This is largely because external debt is consumed rather than invested. External debt sustainability needs a holistic approach in less developed countries. The findings place much emphasis on improvements in gross domestic product and tax revenues as the principal routes out of the debt doldrums. However, this option must be exploited with great caution as there is ample evidence that these poor countries increase their external borrowing capacities with improvements in economic outlook.Originality/valueThis paper fills a research gap that identifies specific components of government deficit budgets that may be contributing to the growth rate of external debts among HIPCs.

Is the third Greek Memoranda of Understanding and Loan Agreement of August 2015 odious?

PurposeThe purpose of this study is to examine the odious debt concept in Greece. In Greece, the odious debt concept received high attention during recent financial crisis and Greek or Hellenic Parliament decided to establish a Special Committee.Design/methodology/approachThe Greek Parliament Truth Committee on Public Debt investigated the public debt in Greece, and the main findings are: increase of debt was related to the growth in interest payments, high public spending in defence expenditures associated with corruption scandals, falsification of public deficit and debt statistical data and illicit capital outflows and adopting the euro led to a drastic increase in private debt.FindingsBased on above the third Memoranda of Understanding (MoU) and the August 2015 loan agreement, according to Greek Parliament Truth Committee on Public Debt are illegal, illegitimate and odious because they fail to recognize the odious character of Greece’s existing debt, and the nature of the instruments by which this debt was financed from 2010 until early 2015. The Third MoU and the August 2015 loan agreement violate the fundamental human rights of the Greek people (both civil and political as well as socio-economic rights) as set out in the Greek Constitution and under international law (treaty-based and customary).Research limitations/implicationsOn the other side of results, Greece was a democratic regime during the time it contracted the vast majority of its loans and membership into the Eurozone, which benefitted country by gaining the highly low interest rates that euro currency involved. Also, substantial borrowing for Greece spent directly on the people via social welfare and public sector wages and infrastructure development.Practical implicationsTherefore, Greece, instead of the odious debt doctrine, should resort to other debt solutions such as simple debt repayment, restructuring or “haircut” of the debt (principal and interest) or declare bankruptcy without invoking the odious debt doctrine. Although this recourse avoids the dangerous precedent-setting risks of the odious debt doctrine, it also involves numerous other complexities and policy problems because with default, the banking system would collapse.Originality/valueIt is the first study examining the topic of odious public debt in Greece.

J. King, The Doctrine of Odious Debt in International Law: A Restatement

J. King, The Doctrine of Odious Debt in International Law: A Restatement

Agency law and odious debts

ABSTRACTBecause of the way that the international lending system works, poor nations have been forced to repay sovereign debts without having a moral obligation to do so. Suppose a corrupt public official borrows money from an international agency, or from private investors, and later on embezzles this money, or uses it to oppress the population. Suppose, further, that the lender is aware of the potential of this situation and still lends. Typically, the international community considers that successor governments have the obligation to repay the funds and the interests associated to them. In fact, this is what they usually end up doing. Public officials are all aware that if they do not honour sovereign debts, they will face all kinds of negative consequences, including exclusion from future markets, loss of reputation and legal sanctions. Owing to this mechanism, entire generations have been burdened with debts fraudulently incurred in their name by governments in the past. These kinds of debts have been known in the legal literature as ‘odious’.In this article, I discuss the conditions defining the bindingness of a debt. I suggest that they can be made explicit by looking at the rules under which the lending system works at the domestic level, and by then extending these rules to the international domain. I argue that, because of their plausibility, these are the rules that should govern international lending from now on. I also discuss the feasibility of extending these rules globally, and consider potential objections to my proposal.