Ukraine’s Odious Debts

(April 9, 2014) U.S. economist and columnist Irwin Stelzer draws on the doctrine of odious debts for his most recent opinion piece to suggest Ukrainian citizens repudiate public debt incurred by former regimes that instead of benefiting the people went to fund the “fancies” of the country’s “now-deposed gang of public- and private-sector cronies”.

By Irwin M. Stelzer, The Weekly Standard magazine, Vol. 19, N0. 29

American taxpayers once again find themselves faced with a similar scenario to the one they faced with Iraq when called on to weigh how much financial assistance to provide a country left with billions in debt incurred by an ousted despotic regime. The difference between Iraq and Ukraine, however, writes economist Irwin Stelzer for The Weekly Standard in “Ukraine’s Odious Debts,” is that “ Iraq’s huge but mismanaged oil reserves gave it some prospect of repaying loans sooner rather than later, whereas the tapped-out Ukrainian economy has a long way to go before it will be financially viable.”

That day will be hastened if the government elected in May takes one giant step towards financial solvency and repudiates the billions in debt incurred by ousted president Viktor Yanukovych and the kleptocratic regimes preceding his—among the most corrupt in the world according to Transparency International—that have brought Ukraine to the edge of ruin.

Although, Mr. Stelzer says the Iraq case for debt repudiation was stronger than Ukraine’s, given that Ukrainian voters elected their looters to office, the case for repudiation remains overwhelming.

After all, the nation’s citizens never had an opportunity to approve the use of the proceeds, and the creditors had to know that they were lending to a regime that just might not be around when its IOUs came due.

Ukraine is faced with two choices, he says: either use some of the $27-billion bailout money the International Monetary Fund is organizing to pay off the country’s creditors or repudiate the “odious debt” legacy of its previous regimes.

A common caution against odious debt repudiation concerns the hurdles a repudiating economy might face when trying to secure future loans from international creditors wary of being unable to collect. A concern Stelzer considers an obstacle but not a persuasive one for a reform-minded new government.

Repudiation might make it a bit more difficult for the new government to borrow on international capital markets, but access to international capital markets should not be out of the question for a reform-minded government. International lenders have in the past made funds available to governments that have hardly demonstrated overwhelming concern for honoring their past obligations.

Read the full commentary by Irwin Stelzer here at the publisher’s website.


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