Tuesday, May 08, 2012
Some of the stigma attached to debt seems to loose some sting with The Concept of Odious Debt: "Odious debt is an established legal principle. Legally, debt is to be considered odious if the government used the money for personal purposes or to oppress the people. Moreover, in cases where borrowed money was used in ways contrary to the people’s interest, with the knowledge of the creditors, the creditors may be said to have committed a hostile act against the people. Creditors cannot legitimately expect repayment of such debts. The United States set the first precedent of odious debt when it seized control of Cuba from Spain. Spain insisted that Cuba repay the loans made to them by Spain. The U.S. repudiated (refused to pay) that debt, arguing that the debt was imposed on Cuba by force of arms and served Spain’s interest rather than Cuba’s, and that the debt therefore ought not be repaid. This precedent was upheld by international law in Great Britain v. Costa Rica (1923) when money was put to use for illegitimate purposes with full knowledge of the lending institution; the resulting debt was annulled." It was formalized later(1927) by Alexander Nahum Sack and there is a widely quoted 2002 IMF paper by Michael Kremer and Seema Jayachandran in which they argue: "... if there were an institution that assessed, and announced, whether regimes were odious, this could create a new equilibrium (that is, market outcome) in which countries' reputations would not be hurt by refusal to repay illegitimate debts, just as individuals' credit ratings are not hurt by refusal to pay debts that others fraudulently incur in their name." In 2007, there were two papers commissioned by the Narvey Government UNCTAD and World Bank publish long-awaited papers on odious debt. As far as I can see, UNCTAD has some forums advising about handling debt and Jubilee Debt Campaign has been active in efforts to Cancelling Poor Countries' Debts: An Interview with Nick Dearden ( See also Review: Africa’s Odious Debt – How Foreign Loans and Capital Flight Bled A Continent.) Now that not-so-far countries are also suffering from odious debt Greece's Odious Debt, By Jason Manolopoulos , perhaps some of the principles advocated by Kremer, Jayachandran and others will be adopted.