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Executive summary

The odious debt doctrine is regularly called upon in debates around the debt issue in countries of the South. Yet the argument is just as regularly ignored or discredited by creditors and their partisans. The latest attempt in this line came from the World Bank when in its report Odious Debt: some considerations [1] it questioned the validity and applicability of the doctrine and tried to bring the debate to a close by suggesting that indebted countries ought to negotiate in order to make their debts sustainable. CADTM sees it as essential to keep the debate open and to move forward on this issue so as to bring out ways and means for governments and populations to stop paying undue debts.

The doctrine of odious debt: an international law argument at the service of peoples and states

Alexander Sack was one of the first theorists who stated this doctrine in 1927; since then other authors have taken his work further, and significant developments in international law and in state policies account for this updated approach.
Three conditions characterise an odious debt: the non democratic nature of the regime by whom it was incurred, its being incurred against the people’s better interest or in the personal interest of the rulers, and creditors being in a position to know the odious nature of the loans. These conditions are also mentioned in the general definition provided by the Center for International Sustainable Development Law : “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.”
However the first two conditions must not be simultaneously met, nor should they be read in a restrictive way. Indeed free elections are not a sufficient guarantee for a government to be called democratic and to validate the debts it incurred. Any loan to a government, even if democratically elected, that violates the major principles of international law (i.e. those included in the Charter of the United Nations, the Universal Declaration of Human Rights, the 1966 covenants on civil and political rights and economic, social and cultural rights, and jus cogens [2]), must be called odious, whoever the beneficiary may be. Similarly, whatever the nature of the government, the way the money is used must be enough to decide that a loan is odious when it adds to the rulers’ personal wealth or is used for projects that go against the people’s interests such as structural adjustment programmes.
The present interpretation relies on various texts, among which article 53 of the 1969 Vienna Convention on the Laws of Treaties, article 16 of the 1978 Vienna Convention, and article 38 of the 1983 Vienna Convention on Succession of States in respect of State Property, Archives and Debts.
We must also call odious all debts incurred in order to pay back odious debts.
However solid the legal foundation of the doctrine, it has still not systematically resulted in debt cancellation or repudiation. Yet it was never questioned as such: creditors merely exerted pressure on governments to dissuade them from using it, threatening them with international isolation and the closure of capital markets. States’ practices and international use still reflect a power relationship that is favourable to creditors, but this might significantly change if debtors decided to repudiate their odious debts as they are legally entitled to do.

There is no absolute obligation for a country to repay sovereign debts

Whether in international or national law the obligation to adhere to a contract is never absolute. It is framed and limited by several considerations, and there are many valid arguments for debt cancellation. For instance, as stipulated in the 1969 Vienna Convention corruption, threat, deceit, or the incompetence of the signatories are as many grounds on which debts can be called illegal.
Moreover a radical change in circumstances, force majeure, a state of necessity, or considerations related to the notion of equity (fraud, bad faith, abuse of the law, etc.) can also account for a government not paying back debts.
So governments can rely on a wide range of legal arguments to question the payment of debts deemed illegitimate because of conditions imposed on loans, the way loans were used and their consequences, as well as the conditions in which they were incurred.
While there is no absolute obligation to pay, there are a number of higher obligations governments have to meet, such as obligations relating to human rights. Their implementation can never be subjected to the need to adhere to often illegitimate loan contracts.

Unilateral action of governments of both the South and the North based on national and international law

To solve the problems met by countries literally choked by their debts we must reject the “false solutions” set forward by creditors. Illegitimate debts must not be negotiated to become “sustainable.” Governments must have their say as to the illegitimate nature of debts and unilaterally repudiate those that do not meet the major principles of national and international law. The example of Paraguay, that repudiated an illegal debt in 2005, must be followed by other countries.
Governments can also ask their creditors to account for their illicit actions and demand reparations for the damage caused. Debt auditing by public authorities in the South and in the North in collaboration with civil society is the best way to bring out all irregularities in contracts and thus to lay the basis for debt cancellation or repudiation.
CADTM urges all governments in the North and in the South to practise such debt auditing, as was done by Norway and Ecuador [3]
. The solution to the debt issue must be a decisive stage for governments to improve the people’s welfare and to adhere to obligations related to human rights.