Demystifying Alexander Nahum Sack and the doctrine of odious debt

Eric Tousaint’s study of the odious debt doctrine

by Eric Toussaint

Part 11 - What were the arguments advanced by the United States?

1. Spain had issued Spanish securities in Europe with French and British bankers in the name of Cuba. Spain was guarantor of the issuance of these securities and they were backed by revenue from the Cuban customs and other taxes. The majority, if not all, of the bonds issued by Spain in Cuba’s name and the wealth they generated remained in Spain.

2. Strictly speaking, there was no such thing as a Cuban debt because Cuba, as a colony, did not have the right to issue securities on its own initiative or in its own name. The island’s finances were controlled exclusively by the Spanish government.

3. There was no proof that the Spanish bonds secured by Cuba’s revenues were actually used for projects that were beneficial to Cuba. Quite to the contrary, the history of Cuba’s finances as a colony showed that revenue from the island was absorbed by Spain’s national budget. In fact, until 1861, Cuba produced revenues well above the expenditures made by the Cuban government put in place by Spain. The revenue in excess of those expenditures was transferred in large part to Spain. Then, when Spain mounted costly military expeditions in Mexico, in Santo Domingo and against the independentists in Cuba, Cuba’s finances began to go into the red. In other words, Cuba had begun to run a budget deficit because Spain was using Cuba’s revenues to finance colonial wars both outside Cuba and within Cuba itself. The Spanish military expeditions into Mexico and Santo Domingo used Cuba as their base.

4. Based on arguments 1 and 3, the United States’ position was that Cuba’s debtor status was a fiction since the so-called Cuban debts were in reality Spain’s. The United States argued that Spain’s budget absorbed the surplus produced by the island while saddling it with loans which in fact served its own interests and not Cuba’s.

Only after having used the preceding arguments did the United States add the well-known moral argument: “From the moral point of view, the proposal to impose these debts upon Cuba is equally untenable. If, as is sometimes asserted, the struggles for Cuban independence have been carried on and supported by a minority of the people of the island, to impose upon the inhabitants as a whole the cost of suppressing the insurrections would be to punish the many for the deeds of the few. If, on the other hand, those struggles have, as the American Commissioners maintain, represented the hopes and aspirations of the body of the Cuban people, to crush the inhabitants by a burden created by Spain in the effort to oppose their independence would be even more unjust.[…] [The instances of state practice adduced by Spain] are conceived to be inapplicable, legally and morally, to the so called ‘Cuban debt’, the burden of which, imposed upon the people of Cuba without their consent and by force of arms, was one of the principal wrongs for the termination of which the struggles for Cuban independence were undertaken.”

In light of these arguments by the United States, Spain changed its tactics in the negotiations. It proposed that the Cuban debts be submitted for international arbitration in order to determine what share had actually been used in Cuba’s interest. Spain offered to bear the burden of that share of the debts which had not served Cuba and asked the United States to take responsibility for the other part or transfer it to the new independent Cuban State. The American negotiators telegraphed President McKinley to ask his opinion. He responded by making it clear that the United States would not agree to take on any Cuban debt and would not encourage Cuba to agree to do so.

In conclusion, the United States purely and simply repudiated the debt claimed by Spain from Cuba.

In 1909, after the United States had withdrawn its troops from Cuba, Spain demanded that the “independent” government of Cuba repay a portion of the debt. Unsurprisingly, Cuba refused, arguing that the Treaty of Paris of December 1898, which ended the conflict between Spain and the United States, had cancelled all debts. From that point, Spain was forced to negotiate with her French and British creditors.

Further, it needs to be stressed, on the one hand, that at no time did the United States invite the Cubans to send delegates to participate in the negotiations held in Paris; and on the other hand that the United States made use of the argument relating to the despotic nature of the colonial regime only secondarily. They concentrated on the use that Spain had made of the so-called Cuban loans to demonstrate that it was Spain first and foremost that benefited from them. They also showed that Spain, and not Cuba, was the actual borrower.

Source and references:

http://www.cadtm.org/Demystifying-Alexander-Nahum-Sack

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