John Coleman
IRCP News
January 1, 2004

When the phrase “odious debt” comes up in most conversation, it refers to an impulse shopping spree, student loans, or last month’s cell phone bill; but for this generation, “odious debt” may have more ominous connotations.

You see, the term “odious debt” now refers not to Visa bills but to outstanding loans in Iraq. Originated by Russian theorist Alexander Sack in 1927 to refer to debt incurred by “regimes” and not by “nations,” the Doctrine of Odious Debt implies that nations shouldn’t be held accountable for the debts of their despotic rulers. As Mr. Sack said, “This debt is not an obligation for the nation; it is a regime’s debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power.”

This seems pretty straightforward. The people of Iraq, newly liberated shouldn’t foot the bill for Saddam Hussein’s private jets and palace lawn-care, but in the international community the case has not been so simple. According to the National Post of October 23, Iraq’s external debt is currently estimated at well over $110 billion (excluding reparations resulting from the 1991 Gulf War). These outstanding loans are owed to everyone from the World Bank to France and the United States, and with stakes so high many countries are sacking Sack’s theory.

On Sunday November 16, US Treasury Secretary John Snow encouraged many western European nations to join the U.S. in forgiving substantial portions of the Iraqi debt. However, many nations that gave substantial monetary support to Saddam’s regime (such as France and Russia) have been reluctant to forego repayment. According to the Agence France Presse of November 7, the Paris Club has recently agreed that it will probably cancel some, but not all, of Iraq’s $40 billion debt to its 19 members. Other nations have not been so kind, arguing that Iraq has the oil reserves to pay for the crimes of its deposed despot.

But is this fair, and is this safe? Nobel laureate Joseph Stiglitz recently argued for the Doctrine of Odious Debt noting that huge reparations were at least partially what drove Germany into economic turmoil – and consequently into the hands of Hitler after World War I. When a people is overburdened financially they often simply cannot recover and anarchy, hopelessness, anger, and political and economic turmoil ensue. Do we really want that to happen in Iraq over a few unpaid loans?

Perhaps more importantly, many, including Mr. Stiglitz, have argued that the Doctrine of Odious Debt is the only way to ensure that tyrants like Saddam never again receive money to preserve their self-interest. They argue that a system of international odious debt forgiveness would put lending nations on notice – support cruel leaders like Hussein, Pinochet, and Mobutu and run the risk of not being repaid.

With such monumental repercussions we cannot turn a blind eye to Iraq’s (and other nations’) odious debt. The fallout from such self-centered actions could lead to an odious future far bleaker than last month’s overdue credit card bill.