Odious Debts or Odious Regimes?

25 Pages Posted: 7 Nov 2007 Last revised: 29 Jun 2011

See all articles by Patrick Bolton

Patrick Bolton

Columbia Business School - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

David A. Skeel

University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)

Date Written: 2007


Current odious debt doctrine - using the term "doctrine" loosely, since it has never formally been adopted by a court or international decision maker - dates back to a 1927 treatise by a wandering Russian academic named Alexander Sack. Sack suggested that debt obligations are odious and therefore unenforceable if 1) they were incurred without the consent of the populace; 2) they did not benefit the populace; and 3) the lender knew or should have known about the absence of consent and benefit. The tripartite Sack definition, which quickly became the foundation of odious debt analysis, contemplates a debt-by-debt approach to questionable borrowing. As attractive as it is in theory, the debt-by-debt approach has a debilitating weakness: money is fungible. A loan that is ostensibly incurred for beneficent purposes often may simply free up other money for misuse.

The principal alternative to a debt-by-debt approach is focusing on the odiousness of the regime, rather than the nature of a particular loan. We argue in this article that a regime-centered strategy is the most promising way forward for odious debt doctrine. To make this case, we must first define what an odious regime is. Perhaps because the Sack definition does not home in directly on the regime, prior scholars have not defined what should or should not count as an odious regime. More surprising, even the few commentators who do call for regime-centered perspectives elide the definitional question. This article attempts to fill the vacuum. A regime is odious, we will argue, if it engages in either systematic suppression or systematic looting. Odious regimes sometimes suppress a subgroup of the population, as with blacks in Apartheid South Africa and Jews in Nazi Germany, and sometimes suppress the entire population, as with Idi Amin's Uganda. The suppression often, but not always, is accompanied by looting. Every odious regime, in our view, is marked by one, the other or both.

After developing our definition, we consider how the definition might be operationalized. We propose that two existing institutions, the United Nations and the International Monetary Fund, share responsibility for identifying odious regimes. The UN, in our view, is best positioned to determine whether a regime is engaging in systematic suppression, while the IMF would assess concerns about looting and other, similar financial depredations. If the UN found evidence of systematic suppression, its declaration of odiousness, which could be made either while the regime was in place or after a new regime had emerged, would render obligations of the regime unenforceable. We envision the IMF policing a regime's looting by imposing conditionalities on access to IMF assistance as well as invalidating the regime's debt.

Keywords: Odious debt doctrine, legal history, international law, politics, systematic suppression, systematic looting, tyranny, UN, United Nations, IMF, International Monetary Fund, sovereign debt, national debt, repayment, forgiveness

JEL Classification: H63, K33

Suggested Citation

Bolton, Patrick and Skeel, David A., Odious Debts or Odious Regimes? (2007). Law & Contemporary Problems, Vol. 70, p. 83, Autumn 2007; U of Penn, Inst for Law & Econ Research Paper No. 07-30. Available at SSRN: https://ssrn.com/abstract=1027940

Patrick Bolton (Contact Author)

Columbia Business School - Department of Economics ( email )

420 West 118th Street
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/pbolton/

Centre for Economic Policy Research (CEPR)

United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

B-1050 Brussels

HOME PAGE: http://www.ecgi.org

David A. Skeel

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-573-9859 (Phone)
215-573-2025 (Fax)

European Corporate Governance Institute (ECGI)

B-1050 Brussels

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