Odious Debts

Mitu Gulati: A ‘Renaissance Man’ in Law

Frances Presma, Duke University Law Magazine
March 30, 2007

Mitu Gulati is described as a leading scholar on sovereign debt whose work looks at how to discourage lending to tyrants who raid the public purse of funds obtained through international borrowing.

Gulati’s interest in international finance goes back a long way. His father, an economist in India, specialized in international finance. Says Gulati: “I grew up around conversations about debt problems, sustainability and the IMF (International Monetary Fund), North-South dialogue, and things like that. In the U.S. there is very little awareness about global debt problems, but the rest of the world has been talking about it for decades.”

A recent organizer of the first-ever conference on odious debt held earlier this year at the Duke Law School in Durham, North Carolina, Gulati is co-author of “The Dilemma of Odious Debts” – a legal paper that explores questions of “odious debts,” those collected by “odious” governments, often through corruption or nefarious means.

Some commentators suggest that states should have the right to completely repudiate debts incurred by these regimes. But Gulati and co-authors Lee Buchheit and Robert Thompson favor independent scrutiny of each contractual debt. “Often if you fail to pay one creditor, it causes a default on everybody’s debt,” says Gulati. “I want a court to declare a debt illegitimate, so that neither the reputational sanction nor the contractual secondary effects from non-payment apply. South Africa could probably say, ‘Look, we just won’t pay any of the arms debt that the previous apartheid regime incurred.’ Yet they don’t.

“But if there was a system whereby they could pay the debts that were incurred to build basic infrastructure, but not those that were used to buy arms used to shoot at [black South Africans], if there is a way that courts could say a debt is not valid under the basic principles of contract law, maybe the creditor community would say that seems fine.”

http://dukenews.duke.edu/2006/10/gulati.html [PDFver here]

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