Legal Scholars Advance the Principle of Odious Debts

The ‘odious debt’ principle morally justified

(March 6, 2004)

Review of International Social Questions
Andreas Hubers
Saturday, March 6, 2004
The principle that foreign debts incurred by an autocratic leader do not have to be paid back by a successor government – is back on the international agenda.1 As it stands, though, his renewed interest in the ‘odious debt’ principle lacks a thorough normative assessment.

The ‘odious debt’ – principle as an essential contribution to justice in international debt relations. A cosmopolitan liberal treatise.2 The more than hundred years old ‘odious debt’ principle is back on the agenda of scholars, non-governmental organizations (NGO’s) and policy-makers. It stipulates that international debts do not have to be paid back by a successor government, if they were made by an autocratic leader and were not used for the benefit of the population.3

However, as it stands the renewed interest in the odious debt principle lacks a thorough normative assessment. To what extent is the reintroduction of the principle morally justified? Here, an answer will be formulated in three steps. First, I briefly describe the current debt regime and the ‘odious debt’ principle. Secondly, principles for justice in debt relations in general and for international debt in particular are drafted. In a third step these principles are used in order to compare the current debt regime with an alternative regime that integrates the ‘odious debt’-principle. In the conclusion, some ethical recommendations are made for the introduction of the ‘odious debt’ principle.

The severe problems that persist in debt relations cannot be satisfactorily solved by any of the instruments that have been applied in the framework of the current regime. Economists like Kremer and Jachandran show that the ‘odious debt’ principle is an economically sensible alternative.4 In order to judge whether it is also ethically preferable, principles of justice in debt relations need to be formulated. Cosmopolitan liberals like Ch. Beitz and T. Pogge argue that the Rawlsian ‘difference principle’ sets a worldwide ethical standard, because global ‘cooperative ventures for mutual advantage’ exist in the contemporary interdependent world.5 For the purposes of this review the question as to whether the current state of globalization may be seen to have established such a venture on a world scale cannot be addressed. However, parties to a debt contract inherently participate in such a venture, so that Rawls’ difference principle must apply in this case.

The consequence of the applicability of the difference principle in international debt relations is twofold: first, a debt regime can only be just if it contributes to the realization of the difference principle – that is to say, if it contributes to an improvement of the situation of the poorest part of the world population. Secondly, any ethical rule that applies on national level must be valid internationally, too. As I see it, there are two important ethical rules on the national level. First, effective promises have to be kept. Secondly, the debtor must not be regarded as merely a means to receive the payments – that is, debts must not set limits to the fundamental autonomy of the individual. These two rules can best be justified within a Kantian theory.

Justice in international debt relations therefore exists if all three of the following
conditions are fulfilled: First, international debts only exist as a result of an effective promise. A promise can only be effective if those who are affected by the debts have given their consent. Secondly, the fundamental autonomy of the individuals living in the debtor countries is respected. Thirdly, the net effect of the debt contributes to an improvement of the situation of the poorest part of the world population.

A comparison between the existing debt regime and the alternative that integrates the ‘odious debt’-principle on this basis leads to clear results. Today’s debt regime scores low on all three conditions for justice. First of all it accepts an international treaty always as an obligation to pay back the debts and does not enquire into whether an effective promise has been given. Secondly, in many countries there are instances where the fundamental autonomy of individuals living in the debtor countries is not protected sufficiently. Thirdly, in the current regime, debts always have to be repaid whatever their effect on the poor.

The odious debt principle is morally more convincing because of the primacy it ascribes to an effective promise. It rightly stipulates that international treaties that are signed by an autocratic regime do not constitute an effective promise and, therefore, do not have to be paid back. Hence, the odious debt principle fulfils the first principle of justice for international debts. However, it does not live up to the second principle. After, all, even if a country would improve its productive capacities through a loan, it might still have to make repayments on a scale that limits the autonomy of the poor.

Still, the cancellation of current debts that qualify as ‘odious,’ would contribute to ‘sustainable debts’ and thus to a situation whereby the fundamental autonomy of the individuals is respected. Indeed, a debt regime that integrates the ‘odious debt’ principle would contribute to an improvement of the situation of the global poor as it compels creditors to issue only productive loans, other loans might never be paid back. Thus, the ‘odious debt’-principle does fulfil the third principle.

The conclusion, then, is that the ‘odious debt’ principle offers a more just alternative to the current debt regime. As mentioned, economists such as Kremer and Jachandran have already provided prudential arguments for the introduction of the ‘odious debt’ principle. In addition, I have shown that the adoption of the principle is also morally justified. Indeed, a cosmopolitan liberal perspective on international justice provides a strong moral argument in favour of the introduction of the ‘odious debt’ principle.

Review of international social questions

1 See, for instance, the article Drop Saddam’s Debt [PDFver here] by Noreena Hertz. 2 This article is an abstract of the author’s MA Thesis (International Relations, University of Groningen, The Netherlands) 3
Sack, A., Les effets des transformations des états sur leurs dettes
publiques et autres obligations financières: traité juridique et
financier (Paris 1927). 4 Kremer, M. and Jachandran, S., ‘Odious debts,’ Finance and development, 39 (2002), 36-41. 5
Among others: Beitz, Ch., Political theory and international relations
(Princeton 1999 (1st edition 1979)), Pogge, T., Realizing Rawls (Ithaca
and London 1989).

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