Eric
Tousaint’s study of the odious debt doctrine
by
Eric Toussaint
Part
19 - Can we really talk of “Sack’s odious debt doctrine”?
If
we consider that a “doctrine” designates the totality of the
opinions expressed by legal experts as the result of their reflection
on a given rule or situation; if elaborating a doctrine means “A
legal framework, defining it, placing it within the context of the
law, defining its limits, its practical application, the social
effects and at the same time making a systematic, analytical,
critical and comparative examination”, it is justified to
consider that Sack has elaborated an odious debt doctrine.
To
elaborate his doctrine he referred to an ample quantity of
international treaties pertaining to arbitrations on questions of
debt repayments concluded between the end of the 18th century and the
1920s; he analysed the way disputes over debt had been treated and
the legal, administrative and judicial measures taken; he collected
and classified the opinions of numerous authors (in fact, only
Europeans and Americans) who had studied the question. He presented
his vision of the nature of debts, the obligations of the debtors and
the rights of the creditors, the relations between successor States,
the way debts and the effects of regime changes were shared, and
defined the criteria for odious debts.
The
doctrine is open to criticism, has weaknesses, gives priority to
creditors and does not consider human rights, but it does have a
certain coherence. It must also be said that, although disparaged
by influential detractors (the mainstream media, the World Bank and
numerous governments), it inspires numerous movements who look to
Sack’s work for solutions to debt problems. Sack’s two criteria
for determining that a debt is odious and a nation may decide not to
pay, are applicable and justified.
Henceforth,
we must now go beyond Sack’s doctrine using that which is
applicable and rejecting that which is unacceptable and adding
elements related to the social and democratic advances that have been
made in international law since the Second World War.
What
must also be added straight to the odious debt doctrine is the
liability of the creditors; they regularly violate the established
treaties and other international instruments for the protection of
rights. The IMF and the World Bank have continually and
deliberately imposed policies on debtor counties that violate many
fundamental human rights. The Troika that was established in 2010 to
impose brutal austerity policies on Greece dictated laws that
contravene several National and International conventions on rights.
The creditors are more than just accomplices to illegal and sometimes
frankly criminal acts committed by governments. They are in some
cases the instigators of the acts.
The
experience that has been accumulated since Sack made his studies
indicates that several of Sack’s positions may now be updated. A
fundamental point that must now be rejected is the continuity of a
State’s liabilities, even in the case of a change in the regime. Of
course Sack is in favour of recognising an exception – odious debt.
But that is insufficient. Another point to reject is Sack’s
support for the current international financial system. Finally,
Sack considers that a sovereign State may not unilaterally repudiate
debts it has identified as odious without a ruling by a competent
international court (See above passage: “The new government must
prove and an international tribunal recognise that the following is
established:
a)
that the purpose which the former government wanted to cover by the
debt in question was odious and clearly against the interests of the
population of the whole or part of the territory, and
b)
that the creditors, at the moment of the issuance of the loan, were
aware of its odious purpose.”) Since Sack made this proposal, no
international court of the sort has been created. Numerous proposals
have been made, but none have been brought to fruition. Experience
shows that another way must be chosen: a sovereign State that
discovers that it has an odious debt can and should repudiate it
unilaterally. The first steps towards this goal would be to suspend
payments and to conduct an audit with the participation of the
citizens.
A
new doctrine of illegitimate, illegal, odious and unsustainable debt
needs to be elaborated. Movements such as the CADTM have taken on the
task in collaboration with many other associations, and in bringing
together a wide variety of competences. The following is a large
extract of the position adopted by CADTM in 2008 and which still
remains pertinent:
Several
authors have further sought to develop the works of Sack and to adapt
this doctrine to the present context. For example, the Centre for
International Sustainable Development Law (CISDL) of McGill
University in Canada, has proposed this general definition: “Odious
debts are those that have been incurred against the interests of the
population of a State, without its consent and with full awareness of
the creditors.” Jeff King based his analysis on these three
criteria (absence of consent, absence of benefit, awareness of
creditors), and cumulative calculation, to propose a method to
categorise these odious debts.
While
King’s analysis is interesting in many respects, we argue that it
is deficient, since it does not allow for the inclusion of all debts
that should be qualified as odious. In fact, according to King, the
mere establishment of a government by free elections is enough to
disqualify its debts from being categorised as odious. However,
history shows, through Hitler in Germany, Marcos in the
Philippines or Fujimori in Peru, that “democratically” elected
governments can be violent dictatorships and commit crimes against
humanity.
It
is thus necessary to analyse the democratic character of a debtor
State beyond its appellation: any loan must be considered odious, if
a regime, democratically elected or not, does not respect the
fundamental principles of international law such as fundamental human
rights, the sovereignty of States, or the absence of the use of
force. The creditors, in the case of notorious dictators, cannot
plead their innocence and demand to be repaid. In this case, the
purpose of the loans is not fundamental for the categorisation of the
debt. In fact, financially supporting a criminal regime, even for
hospitals and schools, is tantamount to helping the regime’s
consolidation and self-preservation. Firstly, some useful investments
(roads, hospitals…) can later be used to odious ends, for example,
to sustain war efforts. Secondly, the fungibility of funds makes it
possible for a government that borrows to serve the population or the
State – which, officially, is always the case – to generate other
funds for less noble goals.
The
nature of regimes aside, the purpose of funds should suffice to
qualify debts as odious, that is, whenever these funds are used
against the populations’ major interests or when they directly
enrich the regime’s cohorts. In this case, the debts become
personal debts, and not those of the State which is represented by
its people and its representatives. Let’s recall one of the
conditions of debt regulation, according to Sack: “the debts of
State have to be incurred and the funds that are derived must be used
for the needs and in the interests of the State.” Thus,
multilateral debts incurred within the framework of structural
adjustments fall into the category of odious debts, since the
destructive character of these debts has been clearly shown, namely
by UN agencies.
In
fact, considering the development of international law since the
first theorisation of odious debt in 1927, odious debts can be
defined as those incurred by governments which violate the major
principles of international law such as those included in the Charter
of the United Nations, the Universal Declaration of Human Rights, and
the two complementing covenants on civil and political rights and
economic, social and cultural rights of 1966, as well the peremptory
norms of international law (jus cogens). This affirmation is
confirmed by the 1969 Vienna Convention on the Laws of Treaties,
whose article 53 allows for the cancellation of acts which conflict
with jus cogens and which also accounts for the following norms:
prohibition of wars of aggression, prohibition of torture,
prohibition to commit crimes against humanity and the right of
peoples to self-determination.
This
spirit infuses the definition proposed by the Special Rapporteur
Mohammed Bedjaoui in the report on the succession of State debts to
the 1983 Vienna Convention: “From the point of view of the
international community, odious debt is understood as any debt
incurred for purposes that contradict contemporary international law,
particularly the principles of international law incorporated in the
UN Charter.”
Thus,
the debts incurred by the apartheid regime in South Africa are
odious, since this regime violated the UN Charter, which defines the
legal framework of international relations. In a resolution
adopted in 1964, the UN had asked its specialised agencies, including
the World Bank, to cease financial support of South Africa. In
contempt of international law, the World Bank ignored this resolution
and continued to lend to the Apartheid regime.
International
law also stipulates that debts resulting from colonisation are not
transferable to newly independent states, in conformity with Article
16 of the 1978 Vienna Convention that says “A newly independent
State is not bound to maintain in force, or to become a party to, any
treaty by reason only of the fact that at the date of the succession
of States the treaty was in force in respect of the territory to
which the succession of States relates”. Article 38 of the 1983
Vienna Convention on the succession of states in respect of States
Property, Archives and Debts (not yet applicable) is quite explicit
in this respect:
1.
“When the successor State is a newly independent State, no State
debt of the predecessor State shall pass to the newly independent
State, unless an agreement between them provides otherwise in view of
the link between the State debt of the predecessor State connected
with its activity in the territory to which the succession of States
relates and the property, rights and interests which pass to the
newly independent State”.
2.
“The agreement referred to in paragraph 1 shall not infringe the
principle of the permanent sovereignty of every people over its
wealth and natural resources, nor shall its implementation endanger
the fundamental economic equilibrium of the newly independent State”.
It
should be kept in mind that the World Bank is directly involved in
some colonial debts since in the 1950s and 1960s it generously loaned
money to colonial countries for them to maximise the profits they
derived from colonial exploitation. It must also be noted that the
debts granted by the World Bank to the Belgian, French and English
authorities within their colonial policies were later transferred to
the newly independent states without their consent.
Moreover
it did not comply with a 1965 UN resolution demanding that it stop
its support to Portugal as long as this country maintains its
colonial policy.
We
must also define as odious all debts incurred in order to pay back
odious debts. The New Economic Foundation rightly considers that
loans contracted in order to pay back odious loans are similar to a
laundering operation. Auditing debts will determine which loans are
legitimate.
While
there are dissensions on the definition of odious debts, the legal
debate takes nothing away from its relevance and cogency. On the
contrary, such debate reflects just what is at stake for both the
creditors and the debtors and is simply the transfer of conflicting
interests onto a legal level. Several cases have shown that the
notion of odious debt is a legally valid argument not to pay debts.
Source
and references:
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