Eric
Tousaint’s study of the odious debt doctrine
by
Eric Toussaint
Part
1
Rarely do
people, whether detractors or defenders of the doctrine elaborated by
Alexander Sack, take the time to understand the international
lawyer’s framework of analysis or his political leanings. Alexander
Sack was not a humanist seeking to preserve peoples or nations from
the nefarious actions of heads of State or creditors ready, through
fraudulent or even criminal means, to plunge the collectivity into
what was in fact odious debt. His principal aim was not to bring
ethics or morality to international finance. Sack merely wanted to
protect creditors’ rights, but he had to mention the important
exception to the sacrosanct rule that debt repayment must continue at
all costs, i.e. that in certain circumstances creditors have to
accept the cancellation of debt owed them, if that debt can be shown
to be odious.
Though
disparaged by powerful detractors and despite its author’s obvious
political limitations, the doctrine of odious debt inspired a series
of movements looking to Sack’s work for a means of combating
illegitimate, illegal, odious or unsustainable debt.
The two
criteria that Sack picked to determine the existence of odious debt
that a nation may refuse to repay are both functional and justified.
They are: absence of benefit for the population and the complicity of
the creditors. Our aim is to go beyond Sack’s doctrine, retaining
what is functional, eliminating what is unacceptable from the outset,
while integrating elements devolving from social and democratic
victories which have found their way into international law since the
Second World War. The rule whereby States remain under obligation to
repay debts after a change of regime favours creditors and reinforces
the dominant international order by trying to prevent States (and
peoples) from shaking off the burden of debt. This rule has often
been questioned, both in theory, by numerous 19th-century jurists and
in practice, by States resorting to unilateral debt repudiation.
The most
frequently-quoted part of Sack’s book, the section on odious debt,
is sometimes misinterpreted. It runs as follows: “If a despotic
regime incurs a debt, not for the needs and in the interests of the
State, but to reinforce its tyranny and to put down any resistance on
the part of the people, then this debt is deemed odious for the
population of the entire State. It is not an obligation of the
nation: it is the debt of a regime, a personal debt of the power that
incurred it. Consequently, it falls when the power falls.” (p.
157) “The reason why such ‘odious’ debts cannot be
considered as incumbent on the State is that they do not fulfil one
of the prerequisites of State debts, namely that State debts must be
contracted, and the funds that they provide utilised, for the needs
and in the interests of the State. The State is not liable for
‘odious’ debts incurred and utilised, with the knowledge of the
creditors, for ends which are contrary to the nation’s interests,
should that State succeed in ridding itself of the government that
had incurred them.” (…) “The creditors have committed a
hostile act with regard to the people; they cannot therefore expect a
nation freed from a despotic power to take on the ‘odious’ debts,
which are personal debts of that power.” (p. 158).
The present
study aims to clarify Sack’s position, place the doctrine of odious
debt in its original context and see how that doctrine should be
developed. As we shall see, the despotic nature of the regime is not
a sine qua non condition to determine the odious nature of a debt,
that would justify its repudiation. There are two criteria to be met:
a debt is odious if it has been incurred against the interests of the
population and the creditors were aware of this at the time.
Alexander
Nahum Sack (Moscow 1890 – New York 1955), a Russian lawyer who
taught in Saint Petersburg then in Paris, is considered to be one of
the founders of the doctrine of odious debt. The doctrine, based on a
series of precedents in jurisprudence, has come in for a lot of
debate. Often disparaged and widely avoided or ignored in university
courses, the doctrine of odious debt has nevertheless been the topic
of hundreds of articles and dozens of specialized books. The United
Nations International Law Commission, the IMF, the World Bank, the UN
Conference on Trade and Development, the UN independent expert on the
effects of foreign debt and other related international financial
obligations of States on the full enjoyment of all human rights,
Ecuador’s Commission for the full audit of public debt set up in
2007 by President Rafael Correa, the Committee for the Abolition of
Third World Debt, now known as the Committee for the Abolition of
Illegitimate Debt (CADTM) and the Greek Debt Truth Commission set up
by the president of the Hellenic Parliament in 2015 have published
documents, taken a stand and organized seminars on the topic, as
debts whose legitimacy and validity may be questioned are constantly
under discussion in the field of international relations.
There are
also recent academic publications on the subject: Jeff King, The
Doctrine of Odious Debt in International Law. A Restatement,
University College London, 2016; Stephania Bonilla, Odious Debt:
Law-and-Economics Perspectives, Gabler publishers, Wiesbaden, 2011;
Michael Waibel, Sovereign Defaults before International Courts and
Tribunals, University of Cambridge, 2013; Michael Waibel, Sovereign
Defaults before International Courts and Tribunals, University of
Cambridge, 2013. Odette Lienau, Rethinking Sovereign Debt: Politics,
Reputation, and Legitimacy in Modern Finance, Harvard, 2014; Juan
Pablo Bohoslavsky, Sabine Michalowski, “Ius Cogens, Transitional
Justice and Other Trends of the Debate on Odious Debts: A Response to
the World Bank Discussion Paper on Odious Debts” (2009-2010),
Columbia Journal of Transnational Law, Vol. 48.
It has now
been 30 years since I began studying the question, publishing
research and taking part in commissions to identify illegitimate,
illegal, unsustainable or odious debt. I realized that the arguments
developed by Alexander Nahum Sack are little known. Whether among his
detractors or those who base their actions on the doctrine elaborated
by Sack, people often have inadequate or biased knowledge of the
international jurist’s analytical framework or his political
leanings. It is very useful to delve further, beyond a few quotes and
an over-simplified presentation of his work, as the struggle to
combat odious debt may well gain in finesse and strength from such
study.
Alexander
Sack was not a humanist interested in protecting peoples or nations
from the nefarious actions of Heads of State or creditors prepared to
plunge the community into debt using fraudulent or even criminal
means. His main aim was not to bring ethics or morality to the world
of international finance. His aim was to reinforce the international
order in place, by ensuring the continuity of debt repayments so that
creditors could recover the money they had lent.
Sack touches
on the question of odious debt in a work published in Paris in French
in 1927. His choice of title is significant: it translates as The
Effects of the Transformation of States on their Public Debt and
other Financial Obligations: a Legal and Financial Treatise. Sack
began by asking himself what would become of debts a State had
contracted in the case of a revolution, resulting in a change of
regime. Sack states clearly in the first paragraph of the preface,
“the Russian revolution of March 1917 incited me to examine the
effects of the political transformation of a State on its public
debt”. Among the main events that affected him and led him to
conduct a close study, figure writ large October 1917 (which he calls
a “Bolshevik coup d’état”) and the repudiation of the Tsarist
debts by the Bolshevik government in January 1918. He then gradually
widened the field of his research to examine various cases of State
succession and how obligations which tied the new State or new regime
to creditors were affected.
Nicolas
Politis, a Greek lawyer and statesman who wrote the introduction to
Sack’s work, stresses the breadth of the research undertaken: “It
is no exaggeration to say that Mr. Sack has completed the task he set
himself with full honours. He has brought together a collection of
documents of rare value. (…) He has closely tracked the long list
of annexation treaties and debt regulation agreements ratified over
the last 150 years and analysed their clauses one by one; he has
investigated the legislative, administrative and judicial measures
taken to implement them; he has looked up and classified the opinions
of all authors to have written on the subject. Finally, he
demonstrates, through the use he makes of all this material, an
extraordinary grasp of the practical necessities of the law. Thus he
explains, down to the last detail, the juridical nature of the
succession of debts, borrowers’ obligations and lenders’ rights,
the relations between successor States, how they divided debts
between them and how they established their shares.” (trans.
CADTM)
Not until
the end of the published book do we find about fifteen pages, in
chapter 4, on odious debt. The preceding 157 pages deal with the
transfer of public debt in different situations: conquest (or
annexation) of one State by another; the separation of one State from
another; the effects of a change of regime resulting from a
revolution, etc. I will deal with Sack’s position regarding odious
debt later in this article.
Source
and references:
http://www.cadtm.org/Demystifying-Alexander-Nahum-Sack
[2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20]
[2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20]
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