Committee for the Abolition of Illegitimate Debt

In April 2023, the Vienna Convention on Succession of States in Respect of State Property, Archives and Debts of 1983 will celebrate its 40^th anniversary. Adopted by a Conference convened by the General Assembly of the United Nations, this Convention is a benchmark in international law. [1] It opposes, on the one hand, movements for independence and decolonization which refuse to accept the burden of debts contracted by their predecessor States, and on the other hand defence of the dominant colonial and postcolonial order supported by the major creditor States. Though contested by those creditor States, the work of the International Law Commission (ILC) of the United Nations established the legitimacy under law of unilateral acts of repudiation of debt by new States or new governments.

The International Law Commission (ILC) of the United Nations established the legitimacy under law of unilateral acts of repudiation of debt by new States or new governments.

The principle of the continuity of obligations related to debt on succession of States or governments is at the core of the conflicts concerning sovereign debt Sovereign debt Government debts or debts guaranteed by the government. , and history shows very clearly that this is not an intangible principle. In a recent article Michael Waibel, professor of international law at the University of Vienna, considers the debates that have arisen over the obligations of successor States regarding debt in the context of decolonization. [2]

He devotes his analysis to the power-based relationship between two approaches to succession of States as regards debt. One approach is conservative and holds that governments inherit the debts of their predecessors. Under the principle of universal succession, there is an “automatic and complete assumption of the colonial power’s rights and obligations by the newly independent state.” The other, critical, approach holds that the successor State is not bound by the debts of the predecessor State because “the former colonial power’s obligations (including debts) as they relate to the territory of the newly independent state are extinguished on independence” (the clean slate principle).

This latter approach is notably defended by Mohammed Bedjaoui, a judge at the International Court of Justice in The Hague for nearly twenty years (1982–2001). He was also a member of the International Law Commission of the United Nations (1965–1982) and Special Rapporteur for “the succession of States in respect of matters other than treaties.”

It is important to recall that Mr. Bedjaoui was legal adviser to Algeria’s F.L.N., then of the provisional government of the Republic of Algeria (GPRA) from 1956 to 1962, the Algerian delegation’s expert at the Évian and Lugrin negotiations for Algeria’s independence (1961–1962) and Cabinet Director of the president of the Constituent National Assembly in Algiers (1962). Thus he was active in the Non-Aligned Movement, in favour of the clean slate approach that clearly prevailed during the decolonization period.

 The Convention of 1983: foundation of a new international economic order

The Vienna Convention of 1983 carries the legitimacy of a United Nations General Assembly resolution making it a reference in international law

Mohammed Bedjaoui, with the support of a number of Third World States, was a political force within the International Law Commission of the United Nations, advancing the struggle of the newly independent States for emancipation from the economic domination of the Western powers and a new international economic order. One of the goals of Mohammed Bedjaoui’s battle within the International Law Commission was to provide States with tools under international law for legitimizing unilateral acts, and among them the repudiation of debts by newly independent States.

The work done by Mohammed Bedjaoui led to a multilateral treaty, the Vienna Convention on Succession of States of 1983, which reflects the above-mentioned critical approach. It also deals with Article 16 of the Convention of 1978, which stipulates that States resulting from decolonization are not automatically bound by a treaty in force in respect of their territory at the date of succession. Article 38 of the Vienna Convention of 1983 on Succession of States in Respect of State Property, Archives and Debts (not yet in force) is explicit in this regard:

• 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;

• 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 equilibria of the newly independent State.

The Vienna Convention of 1983 was adopted by 54 States at the United Nations Conference on Succession of States in Respect of State Property, Archives and Debts. [3] Its content has the legitimacy of a Resolution adopted by the General Assembly of the United Nations, which makes it a reference in international law. However, Mohammed Bedjaoui and the Non-Aligned Movement Non-Aligned Movement
NAM The Non-Aligned Movement is a group of countries who, beginning in the 1950s, promoted a policy of neutrality towards the blocs led by the two superpowers – the USA and the Soviet Union –, who were by then fully engaged in the Cold War. In April 1955, a conference of Asian and African countries was held in Bandoeng (Indonesia) to promote unity and independence for the Third World, decolonization and an end to racial segregation. The initiators were Tito (Yugoslavia), Nasser (Egypt), Nehru (India) and Sukarno (Indonesia). The actual birth of the Non-Aligned Movement occurred in Belgrade in 1961. Other conferences would follow in Cairo (1964), Lusaka (1970), Algiers (1973) and Colombo (1976).
The work of the Non-Aligned Movement, which includes 120 countries, has had limited impact in recent years. did not succeed in securing the support of the creditor States. An international convention is a formal declaration of principle, but does not have binding force. For it to be binding it has to be signed by States who agree to apply it in their own national law. The Vienna Convention on Succession of States in Respect of State Property, Archives and Debts of 1983 was signed by seven States: Algeria, Argentina, Egypt, Montenegro, Niger, Peru and Serbia, and ratified by seven other States: Croatia, Estonia, Georgia, Liberia, North Macedonia, Slovenia and Ukraine. However, Canada, the UK and the USA, among others, voted against adoption.

As a result, the dominant narrative of the major creditor States points to the project for codification of the International Law Commission, a failure whose measures supposedly have no impact on States’ practices.

 The contemporary practice of States against the economic dominance of the major powers

However, another reading than that of the dominant international order is possible, and it is legitimized by the practice, including contemporary practice, of several States in cases of succession of States or governments. As CADTM International has demonstrated for years, there have been major acts of unilateral repudiation of debt in the 19^th and 20^th centuries: Portugal in 1837; Mexico in 1861 and in 1867; the USA in 1865, in the 1870s and in 1898; Costa Rica, after a change of régime in 1919, repudiated the debt contracted by the previous régime; in February 1918 the Soviet government repudiated all debt contracted by the Tsarist régime and by the provisional government which succeeded it between February and October 1917. And it must not be forgotten that the Treaty of Versailles of June 1919 cancelled the debts of both Poland, colonized by Germany, and of the African territories also colonized by Germany. Similarly, in the early 1920s, the Russian Soviet government cancelled the debts of the part of Poland annexed by the Tsar and those of the three Baltic Republics (also annexed by the Tsarist empire), not to mention Turkey and Persia. [4] In 1933-1934, the United States under President Franklin D. Roosevelt repudiated, in all existing debt contracts, the possibility for creditors to be repaid in gold. [5] Here is a non-exhaustive list of repudiations of debt in the second half of the 20^th century: the repudiation of debt by revolutionary China in 1949–1952; Indonesia’s repudiation, in 1956, of the debts claimed by the Netherlands, which had colonized the archipelago until 1949; Guinea Conakry’s refusal to repay the French colonial debt in n 1958; Cuba’s repudiation of debts in 1959–1960; the refusal by Patrice Lumumba, Prime Minister of Congo, to repay Belgium’s colonial debt in 1960; Algeria’s repudiation of colonial debts in 1962; Iran’s repudiation in 1979 of the debts contracted under the Shah to purchase armaments. [6]

 New debt repudiations since 1991

The transfer of debt-related obligations is far from being automatic

There have also been more recent cases of repudiation of debt by new States or governments which, whilst they may be considered exceptional by those who defend the dominant trend, for us are emblematic.

One example is the repudiation by the three Baltic Republics of the debts inherited from the Union of Soviet Socialist Republics (USSR) upon its dissolution in 1991. The former USSR had annexed the Baltic States beginning in 1940. Due to the illegality of that occupation, the Baltic States have made it clear that they refuse to participate in the debt of the former USSR and thus to be its successor. Also, not counting the Baltic States, the succession of former USSR debts for the 12 other States it comprised (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldavia, Uzbekistan, Russia, Tajikistan, Turkmenistan and Ukraine) has been the subject of various agreements which reflect very specific positions regarding the question.

At first, succession between the former USSR and the States was said to exist. There had indeed been a predecessor State and successor States who recognized joint responsibility and solidarity regarding the debt of the former USSR, with its distribution set down in a treaty in the form of percentages. Whereas at that stage the former member States of the USSR seemed to consider themselves as successor States issued from the dissolution of the predecessor State, not all of them took on obligations regarding the debts of the former USSR. Ukraine, more significantly, but also Uzbekistan, Azerbaijan, Turkmenistan and Moldavia questioned the debt percentages. Uzbekistan and Azerbaijan, indeed, had not signed the Memorandum whereby the States recognized responsibility, [7] rejecting any responsibility concerning the debt of the former USSR and defying the principle of continuity of obligations cited as holy scripture by the dominant creditors.

Later, negotiations continued between Ukraine and Russia, but neither gained the upper hand. And whilst the other States had at first promised that they considered themselves jointly responsible in solidarity for the USSR’s debts, no payment was made. An agreement in principle was finally reached, under which Russia won out by imposing a buying-back of the succession of these shares in exchange for possessions of the USSR located in other States. In so doing, Russia asserted itself not as a successor State but as a continuance of the predecessor State. For Russia, therefore, no new State has inherited the debts of the predecessor State, but rather the predecessor State is considered a continuing State, provided that it makes compensation to the other successor States. [8] There is no legal foundation for such an arrangement, in the Convention of 1983 or elsewhere.

As a result, it can be said that there has been no standard application of the principle of continuity of obligations between predecessor State and – in this particular case – the successor States. Out of the 15 Republics who obtained independence after the implosion of the USSR in 1991, the three Baltic States have made clear their objection to the principle of debt succession; two States take on no responsibility for the debt of the former USSR (Azerbaijan and Uzbekistan), while the other States did not pay their share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the debt when expected.

In the case of the conflicts over succession involving the former Socialist Federal Republic of Yugoslavia in the 1990s, there was no repudiation, as such, of debts by the new States; the question of transfer of the debt was the subject of negotiations. Successor States that wanted rapid access to financial markets were willing to take on their share of Yugoslavia’s debt. [9] Agreements on the apportionment of debts were entered into. [10] However, the agreements did not clearly define all the conditions for the transfer of assets and obligations. [11] In its “Ališić and Others” judgement, the European Court of Human Rights ruled that successor States had violated the right of depositors to the peaceful enjoyment of their property and the right to an effective remedy by not reaching an agreement on certain questions concerning succession of the State’s debt. [12]

The Court also points out the customary force of the Convention of 1983. “(…) The matter of State succession is regulated, at least partly, by rules of general international law reflected in the 1978 Vienna Convention on Succession of States in respect of Treaties and, to a certain extent, in the 1983 Vienna Convention on Succession of States in respect of State Property, Archives and Debts (“the 1983 Vienna Convention”) . Although the latter treaty is not yet in force and only three of the respondent States are Parties to it as of now (the former Yugoslav Republics of Croatia, Slovenia and Macedonia), it is a well-established principle of international law that, even if a State has not ratified a treaty, it may be bound by one of its provisions in so far as that provision reflects customary international law, either codifying it or forming a new customary rule .” [13] (Emphasis added by AC and ET). Thus the transfer of debt-related obligations is far from being automatic.

 Non-transfer of debts in Sub-Saharan Africa

In 1993, Eritrea achieved independence from Ethiopia following a war of liberation. The new republic refused to recognize any debt of Ethiopia’s. [14] That decision was later ratified.

Another example is the cancellation in 1994 by the post-apartheid government of Nelson Mandela of the debt South Africa had claimed against Namibia. [15]

Another emblematic case is that of Sudan. Following the referendum on self-determination held between 9 and 15 January 2011, South Sudan, of major economic importance due to the oil operations there, from which the people of the country derive no benefit, seceded from the Republic of Sudan on 9 July 2011.

In September 2012, the two countries arrived at an agreement on allocation of assets and debts, under which Sudan kept all its external assets and debts. [16] It also kept its seat in the United Nations, in the African Union, in the International Monetary Fund 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.

http://imf.org and in other international organizations, while South Sudan was admitted as a new member.

Sudan thus kept the same international legal personality as before the secession of South Sudan, but with a reduced population and territory. [17] Although Sudan assumes responsibility for the debts of the Republic of Sudan, South Sudan, as a newly independent State, did not inherit the debts of the predecessor State, thus challenging the so-called principle of transfer of obligations.

 Non- transfer of debts in Asia

When Timor-Leste (also called East Timor) won independence in May 2002, the new State came into being without debt. Timor-Leste, a Portuguese colony until 1975, was annexed by Indonesia under the dictatorship of Suharto. The Timorese liberation movement FRETILIN engaged in armed struggle for nearly 30 years. In 1999, following a referendum in which an overwhelming majority of the Timorese population chose independence, the country was placed under UN administration until its independence in 2002. The new State came into being free of debt and determined to accept only grants from the international community for the country’s reconstruction. [18]

 And in Western Europe?

Other independence movements also call into question the principle of continuity of obligations regarding debt.

Such is the case of Scotland in the UK, which held an initial referendum on 18 September 2014 in which the vote against independence won with 55.3% of the vote. In the period preceding the referendum on Scottish independence, two positions have been clearly articulated regarding the question of continuity of obligations regarding debt. On the one hand, the UK, which in a report it commissioned declared that “there would be an expectation that an independent Scottish state would take on an equitable share of the UK’s national debt”– that share to be determined by negotiations. [19] But the Scottish government declared that it would assume independence with a clean slate.

That declaration, and the terms referring to the clean slate principle, are eminently significant. Whilst in the referendum Scotland rejected independence, it did announce in June 2022 that a new referendum was to be held in October of 2023. We shall see what the Scottish government’s position will be regarding the UK’s debt. But the position it took in the first and only referendum suggests that they will again refuse to inherit debts contracted by the UK.

In Spain, in 2017, Catalonia held a referendum on independence in which the “Yes” vote won and which was followed by a declaration of the independence of Catalonia.

Concerning the question of public debt, already in 2014 the former vice-president of Catalonia, Oriol Junqueras, had suggested that Catalonia take on part of Spain’s national debt if Spain was prepared to negotiate the transfer of its assets in Catalonia. [20] Division of Spain’s national debt and assets will remain an important issue even if automatic and unconditional transfer is not the rule.

 On the primacy of human rights and reparations

Disputes concerning debt succession are still especially important in the 21^st century and the practice of secessionist States and entities shows that among the latter, some do not hesitate to struggle against the economic domination of major creditors and refuse to assume debts of predecessor States. The repudiation of the debt of the former USSR by the Baltic countries, South Sudan’s decision not to take responsibility for the debt of the Republic of Sudan or the Scottish government’s “clean slate” declaration are emblematic cases. What is important to retain is that, just as for the other countries of the former USSR or the former Yugoslavia, continuity of obligations is not automatic, but rather is the result of negotiations, agreements and acts of recognition. Contrary to what certain authors claim, there exists no presumption of continuity or complete and automatic assumption of the rights and obligations of the predecessor State by the successor State.

Also, ratification of the Convention is always an important question for formerly colonized countries if it includes articles that open the door to reparations from former colonizer countries. These reparations could take the form of cancellation of debts or nationalizations without compensation, as called for by Mohammed Bedjaoui.

Even in the absence of a change of government or regime, a State can impose debt reduction on its creditors

We must add that even in the absence of a change of government or regime, a State can impose debt reduction on its creditors. That is confirmed by a judgement of the Court of Justice of the European Union on 23 May 2019, which stipulates that by virtue of international law, a State can unilaterally change its obligations regarding debts in order to aid its own population. [21] The Court informed creditors that they could not invoke the principle of continuity of obligations of the Greek State in their favour. The German creditors in question felt that the law adopted by Greece in 2012, which imposes a forced exchange of securities on its debt in exchange for new securities with a reduction in value of more than 50%, constituted a violation of Greece’s obligations. The complainants had invoked violation of the principle of pacta sunt servanda (agreements must be kept) on the honouring of contracts. The Court responded that the general principle did not apply to them, and that in any case a State could refrain from complying with the pacta sunt servanda principle if it validly invoked the rebus sic stantibus (things standing thus) principle. The Court denied their suit and required them to pay court costs. [22]

This confirms that a State confronting a fundamental change of circumstances resulting, for example, from the international economic crisis must be able to cease repayment of its creditors in order to meet the needs of its population. Human rights must effectively prevail over the rights of creditors.