“Ethics and Debt: A view from the International Debtor side”

18 January 2008 by Oscar Ugarteche Galarza

United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

Sixth Inter regional Debt Management Conference was held from 19 to 21 November 2007 in Geneva. Oscar Ugarteche, among others civil society representatives, participated in that conference. His paper, entitled “Ethics and Debt: A view from the International Debtor side”, stated that “it is time to evaluate some elements of what can go wrong in the lending and in the borrowing process and especially, how these can be addressed in the future”.


The Inter regional Debt Management Conference, organized every two years by UNCTAD, provides a regular forum for sharing experiences and exchanging views between governments, international organizations, academia and non-governmental organizations on current developments and issues in both external and domestic debt and debt management.

This year, the Conference addressed the following issues:
* Odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.

* Conditionality and the continued relevance of concessional borrowing
* Orderly restructuring of sovereign debt Sovereign debt Government debts or debts guaranteed by the government.
* The case for further relief
* Contingent liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts).
* The formulation of effective debt strategies

Read Ugarteche’s presentation (pdf format)



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