The challenges of the odious debt doctrine in Ukraine

3 April 2022 by Mats Lucia Bayer

While the Russian invasion of Ukraine continues, the latter contains to languish in a deep debt trap. This has serious consequences for the Ukrainian working people, attacked continuously - socially, politically and economically. We reproduce this 2018 article since the issue is more relevant than ever and also, the London court case on the Ukrainian debt to Russia is still on.

On 19 September 2018, the Financial Times reportedthat a court case between Ukraine and Russia over a US$3 billion loan was imminent.

The lawsuit resulted from Ukraine’s refusal to repay the amount borrowed in 2013 from Russia, arguing that the debt is “odious”. This argument, already put forward in 2015 by the country, refers to the alleged complicity of Viktor Yanukovych’s government with Vladimir Putin’s Russia. Let’s not forget that Viktor Yanukovych was deposed in 2014 following the so-called Maidan Square mass movement and left the country to settle in Russia. The Financial Times reassures its readers that it’s least likely that the London court will refer to the doctrine of 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.
while ruling on the case. The reason for the dispute to be dragged to the London court is due to the fact that the debts were incurred under British law and both the plaintiff and the defendant had agreed that the British courts will decide on any dispute.

Moreover, the reference to the “odious debt” doctrine would be politically and morally beneficial to Ukraine, since it would fall on Russia’s shoulder the need to justify its actions during the Ukrainian civil war.

Beyond the more or less self-serving, even opportunistic use of this concept by the Ukrainian government, the dispute is relevant as it puts back on the agenda the doctrine of “odious debt”. This doctrine, developed by the jurist Alexander Nahum Sack, establishes that the “odious” character of a sovereign debt Sovereign debt Government debts or debts guaranteed by the government. will be determined by two elements:

  1. 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
  2. that the creditors, at the moment of the issuance of the loan, were aware of its odious purpose. [1]

Given the nature of the loan - provided by Russia to Ukraine - at the heart of the dispute, it could clearly amount to an ’odious’ debt

Indeed, given the nature of the loan - provided by Russia to Ukraine - at the heart of the dispute, it could clearly amount to an ’odious’ debt since the loan would have been a Russian rewardfor Yanukovych’s loyalty, and after his overthrow, Moscow would be accused of interference and then, a direct participation in the Ukrainian civil war.

It is possible to extend this argument to other debts contracted by this country, which makes the Ukrainian government’s claim a real issue. It’s for this reason that the case about Ukrainian debt to Russia is also an issue for the Financial Times and probably in the eyes of the London court. The opinions expressed by this newspaper, whose editorials are among the main voices representing the interests of big business, is significant. There is a fundamental contradiction here, linked to the very history of the ’odious debt’ doctrine. Alexander Sack’s approach, which became a reference for the formulation of the “odious debt” doctrine, had a completely different objective: to limit the number of repudiations of sovereign debts in order to guarantee a maximum of recoveries by private creditors. Moreover, a good number of repudiation cases had already occurred at the time of the formulation of this doctrinewithout Sack having taken them all into account. His aim was therefore not to justify, let alone encourage, repudiations of sovereign debt by countries, but to anticipate the vagaries of a sovereign debt market, often politically determined, in order to strengthen it. His approach has, however, set the framework for the analysis and debate around repudiations and their potential relevance.

A debate that often leads to contradictory situations : In 2003, a month after the invasion of Iraq by the coalition comprising the United States, Great Britain and Australia, the United States declared that it considered the debt incurred by Saddam Hussein’s regime to be "odious. In its view, it was essential to repudiate the debt as it would be an illegitimate burden on the creation of a democratic regime in the country. Both the Financial Times and the creditor countries expressed their doubts at the time, especially because of the dangerous precedent that this recognition of odious debt could have. In reality, the United States saw this debt (and the need to repay it to creditors, notably France, Germany and Russia) above all as an obstacle to the development of its business in Iraq [2]. The negotiations resulted in the cancellation of 80% of the debt by the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

in November 2004. The World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

followed suit, as did other creditors. In the end, the conditions were met for the appropriation of the main Iraqi markets by American private capital. The Iraqi example shows that the strategies of capital to enlarge its base of accumulation do not only concern the mechanism of debt increase but sometimes also its partial cancellation (which is different from a repudiation).

The dispute between Ukraine and Russia reveals a contradiction similar to that of Sack’s theorization. In parallel with the announcements of repudiation of the debt owed to Russia, the new Ukrainian government has taken out loansfrom the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, for a total amount of 17.3 billion dollars. The then Prime Minister Arseni Yatsenyuk, supported by the billionaire Petro Poroshenko, the new Ukrainian president, insisted on the inevitability of this loan [“The government will meet all the conditions set by the IMF, because we have no other choice,” Yatsenyuk said during a meeting with members of the European Business Association (EBA EBA
European Banking Authority
The body charged with supervising the European banking system and, along with two other authorities, the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), form part of the European System of Financial Supervision.

). “Ukraine vows to meet IMF loan conditions”, Xinhua, March 3, 2014]. In a context where war expenses were constantly rising due to the conflict in the east of the country, the loan from the IMF also resulted in the application of heavy structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

plans that made the Ukrainian population more precarious. In this sense, it would be perfectly legitimate for the Ukrainian people to take up the issue and demand that the IMF loan be repudiated in the same way as the repudiation of the debt to Russia was envisaged. A repudiation that could be justified by this same “odious character”, the two conditions for the application of the doctrine being met.

This perspective on the different components of the Ukrainian debt allows us to better understand the perspective of the Financial Times, when in 2015 it wrote “Ukraine takes ’odious’ path to default”. For this financial daily, the worst possible scenario in this dispute would be the repudiation Ukrainian debt to Russia as “odious”. The precedent this would set in terms of jurisprudence would be dreadful for creditors around the world. Finally, we see once again how disputes over sovereign debts hide competition and relations of domination between countries based on the export of capital, that is to say imperialist relations; in this case between Russia and the Western powers grouped around the IMF, which have Ukraine as a target. The game of geopolitical tensions practiced by the ruling classes completely neglects the Ukrainian population and its interests. A precarious population, which has been deprived of many rights, and which has the legitimate right to repudiate the odious debts which weigh on the country.

The author thanks Nathan Legrand and Éric Toussaint for their reviews and advice. The author is entirely responsible for any errors contained in this work.


[1Éric Toussaint, The Debt System. A History of Sovereign Debts and their Repudiation , Chicago, Haymarket Books, 2019
See also: Éric Toussaint, A Book that brings odious debt back into the limelight

[2US persuades Paris Club to write off £23bn of Iraqi debt, Ashley Seager, The Guardian, 22 November 2004,

Other articles in English by Mats Lucia Bayer (5)



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