Repudiating public debts incurred by states is entirely libertarian, as argued by Murray Rothbard. Yet even international law recognizes a more limited version of this notion, in the doctrine of Odious Debt developed by Alexander Sack, a professor of law in Paris and former minister in the Tsarist government. After the Russian Revolution of 1917, the Bolsheviks repudiated Russia’s debts indiscriminately. Sack argued that debts not created in the interests of “the state” should not be bound to the general rule that liability for public debts should remain intact when the state is taken over or changed by revolution, coup, etc. He maintained that some debts were “dettes odieuses.”
As noted on the Jubilee Iraq site,
Debts are “odious” when they are contracted without the consent of the people and not spent in their interests and when the creditor is aware of this. The doctrine of odious debts was formalised in 1927 by Alexander Sack, a Russian international law scholar working in Paris.
“When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfil one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the state. Odious debts, contracted and utilised, for purposes which, to the lenders’ knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation, which has freed itself of a despotic regime, to assume these odious debts, which are the personal debts of the ruler.”
In the case of Iraq, there is estimated to be about $125 billion in claims against the Iraqi people, based on debts incurred by Saddam Hussein’s regime. This debt should be repudiated, both under libertarian principles and under principles of international law.
As summarized here, “In April of 2003 Bush Administration officials started talking about how the people of Iraq should not be saddled with debts incurred by Saddam Hussein “to buy weapons and to build palaces.” Debt campaigners quickly seized the initiative pointing out how these debts constitute a prime example of odious debts as they were contracted by a dictatorship, without the consent of the people and with the full awareness of the creditors. These debts should never have to be repaid by the Iraqi people.”An excellent summary and discussion of the doctrine of Odious Debt, its history and origin, and its application to Iraq can be found in Cato Policy Analysis no. 526: Iraq’s Odious Debts by Patricia Adams. Adams notes, for example, that the US engaged in a version of odious debt practice by repudiating (in Section 4 of the Fourteenth Amendment), after the War to Prevent Southern Independence, “the debts that the Confederate States incurred in an attempt to form a new regime as not being the responsibility of either U.S. citizens or the southern states.”
More info on the Doctrine of Odious Debt can be found in the Brookings Institution brief on Odious Debt; and at Probe International’s Odious Debts Web site: The Internet source for information about the global odious debt movement.
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That’s interesting because I guess the ultimate consequence should be that creditors won’t be found as easily anymore for some totalitarian States… which in turn should somewhat reduce the power of some tyrans.
Of course I’m sure tyrans wouldn’t give a precise account about how they’ll use loans.
Basically this rule has an “ethical” drawback though, because it tends to make State creditors reluctant to popular freedom movements.
Oh but wait! Isn’t just someone trying to say something about Irak here perhaps? Do I read “France” and “Russia” between the lines?
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Would you buy Bonds from china at 5%?
And Venezuela at 7%?
Was the above comment about the USA or Iraq?
Would you buy bonds from US at 3-4%? If you weren’t a carribean hedge fund, or an asian economy that needed to recycle dollars?
Of course we are in the unique position of pulling a Weimar, instead of repudiating (defaulting) on our debt.
There is many people buying Venezuelan debt. Particularly venezuelan themselves, because the government issues it’s bonds in BolÃvares and then you can sell them at a discount in dollars, one of the two ways to legally buy foreign currency.
My comment was about the US, as Bush pinpointed back then, how the reluctance of France and Germany to go to war… was a matter of ignominious greed since they were such big creditors to Iraq.
Yes, for the US, it’s getting of course pretty ironic. All those debts that Bush made to go to war In Iraq… I guess the American people could just tell China one day that they were odious too.
I was relating to the Chinese or Venezuelean debts that are contracted as foreign government bonds. Any private investor can buy them through a broker. Will these maybe be parts of an “odious debt”, 10 years from now too?
I m a bit confused about the implication of the whole concept… how should the private investor know that his money is not used for “odious” purposes also?
“how should the private investor know that his money is not used for “odious” purposes also?”
He should do a little research, like with any investment. Any time you lend money to person A, who promises that people B and C will pay back the loan later, you might want to check that B and C are really in on the deal. Anyone who lent Saddam money and expected the Iraqi people to gleefully pay it back was a fool.
In fact, I think pretty much all state debt is odious unless the participants in the state take personal responsibility for paying it back.
There are only a few things that can put a bigger smile on my face than the thought of governments repudiating their debts out right. What a great world it would be if it was clear to one and all what a foolish and wasteful undertaking it is to lend money to any state. This was the attitude of many early Americans. This way of thinking is too uncommon today.
When I told my young nephews (aged 10,8 and 7) that GW Bush had saddled them with considerable debt and that they would be taxed to repay it, they replied that they would not repay it under any circumstances since they had not consented to it. Is not the debt piled on this generation no less odious than the obligations of Mr Hussein?
The train of reasoning that allows governments to obligate its citizens (read: tax-slaves) to repay debt accrued generations ago, or even within a generation, is not exactly airtight. When the government of Iraq fell, I personally thought either 1) that all loans to that regime should automatically have been repudiated, or 2) that the United States government should have taken possession of the debts incurred by the government it overthrew.
Of course, neither thing happened. The US government immediately started talking about making Iraq pay its international debts through oil revenues, to which Iraqis must reply, “Uh, who borrowed this money, again?” The risk of default always looms, even when loaning to a coercive entity. The lenders should just write it off as a loss, just like holders of US t-bills might have to do in a few years, and remember it next time.
My simplistic way to see it:
The bankers who believes that, are waiting that usa comes to the same conclusion: the usa debt from right now is not by the population, the war was not accepted by a majority of american.
but they needed china to take the job of the union in usa, the only solution was to make usa in a too bad economic situation to remain able to make populist decision (risking to destroy some good systems that hide into democracy), the neo-cons were chosen to make this look like there was an ennemy big enough to get 150,ooo soldiers in irak to make like if their students could not make a revolution with their likes of iran,egypt,turkea, algeria, pakistan at the same times..a revolution like chavez in south america who introduce the mercosur in a popular way introducing alter-mondialist into the debate. Open sourcing vs industrial spying: there as to be an equilibium between the two, neither must remain the ennemy because good causes can be used throught these technics.
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