On the horns of an odious dilemma

Lisa Peryman
Probe International
April 15, 2005

Following an announcement this week that the International Monetary Fund (IMF) would provide $3.9 billion in debt relief for Zambia under the World Bank’s Highly Indebted Poor Countries (HIPC) initiative, an article by the government-owned daily, The Times of Zambia, offered a breakdown of “Facts on Zambia” regarding the country’s current financial status under the HIPC plan.

The assessment is framed in the positive, after all Zambia is desperately in need of financial assistance. Reports estimate close to 64 per cent of Zambia’s 10 million citizens live on less than one dollar a day and that one in six Zambian adults is infected with HIV or has full-blown AIDS.

In contrast to the tenor of recent commentary from Kenya and Nigeria – where the focus has shifted toward lender accountability and calls for debt relief based in part on an odious debts argument – The Times article was not intended to raise hackles. According to the Times, the notion of writing off public debt that might be deemed “odious” is too disputatious:

“The issue of what is referred to, as ‘odious’ debt is controversial. International law and common sense suggests that one needs to be very careful about reneging on a country’s sovereign debt by simply classifying it ‘odious.'”

Fair enough. “Odious” debt does sound controversial and that’s because it is. In fact, odious debt is an outrage. So much so, that the principles expounded in the international legal Doctrine of Odious Debts have been successfully invoked in a number of cases to repudiate debt. The definition of what constitutes an odious debt is clear:

“If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the State” and “is not an obligation for the nation” but “a personal debt of the power that has incurred it,” and “consequently it falls with the fall of this power. The reason these ‘odious’ debts cannot be considered to encumber the territory of the State, is that such debts do not fulfill one of the conditions that determine the legality of the debts of the State, that is: the debts of the State must be incurred and the funds from it employed for the needs and in the interests of the State.”

Still, critics persist in the assumption that the doctrine is somehow legally unenforceable or insubstantial, despite substantive wins by petitioners that would suggest the opposite is true.

Responding to just such a criticism earlier this year, Patricia Adams, the executive director of the Canadian-based aid watchdog Probe International and author of “Odious Debts: Loose Lending, Corruption, and the Third World’s Environmental Legacy,” said critics fail to recognize “the long legal history in which the doctrine’s principles have been used to establish the responsibilities of creditors (or borrowers), and thus their rights to repayment (or repudiation).”

“Not only is the doctrine well-rooted in international legal custom,” she said, “so too is it grounded in the rich jurisprudence of common and civil law: the principle of ‘unjust enrichment’ undermines an odious creditor’s rights to repayment, and; the law of domestic agency governs the way in which agents can create legally binding obligations for those they represent, thus putting a dictator’s creditor at risk.”

An “odious” debt claim cannot simply be taken up by countries arbitrarily. Under an odious debts’ challenge, international law requires that debtors and creditors prove that the funds were or were not used in the interests of the state to an arbitration panel, which would then decide whether the debt in dispute could be classified as odious. If it is, the debt becomes the responsibility of the regime that incurred it. In other words, the debt is not dropped or “forgiven,” it becomes a personal debt of the parties that contracted it – the creditors and corrupt rulers they saw fit to lend to – but it no longer encumbers the people.

Accordingly, The Times of Zambia admits that indeed loans could have been managed better:

“[Zambia’s] loans were used perhaps not always in the most efficient manner – to provide roads and other physical and social infrastructure, schools, hospitals and several times during the last two decades, to cushion the country against severe external shocks.”

But the underlying message in the paragraph that follows makes it clear The Times understands the sort of hostility a debt challenge is likely to incur from lenders, who can simply cut future funding when a threat is perceived:

“The international community will have to fund any additional future debt relief and this should not come at the expense of reduced aid flows.”

Therein lies the crux of the struggle: debtors and creditors both know that a good portion of the Third World’s debts are odious and are not legally enforceable. Although, debtors can threaten to challenge odious debts, they want new money and are afraid to rock the boat. Creditors don’t want to be held to account for odious loans and threatening to withhold aid deters challenges. Forgiving such debts and promising new funds in the future satisfies both parties.

But for the sake of their people, debtors should come clean. They should call for a moratorium on repayment of old debts until an internationally recognized arbitration panel can publicly and independently examine the billions of dollars in loans that have failed to generate the wealth forecast to repay them.

Debt forgiveness pardons the wrong-doers, writes off blame, and cancels out a true reckoning of liability.

Odious debt is controversial – to say the least – and that is why it deserves to be dealt with.

Categories: Africa, Odious Debts, Zambia

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