Odious Debt Wears Two Faces: Systemic Illegitimacy, Problems and Opportunities in Traditional Odious Debt Conceptions in Globalized Economic Regimes
46 Pages Posted: 17 Jan 2007 Last revised: 31 Jul 2008
This paper examines the way that the traditional notion of odious debt as a method of repudiating sovereign debt may undergo a conceptual revolution, as it changes focus from the illegitimacy of governments obtaining loans, to the illegitimacy of the systems through which such loans are made and enforced generally. The paper starts with a consideration of the odious debt doctrine as traditionally applied. It then considers the ways in which the traditional expression of the doctrine have been expanded over the last century. There have been attempts to rework the definition of non-legitimate use, grounded in various theories of democratic government and popular sovereignty (essentially grounded in the application of a "would the people have consented" standard): violations of basic human rights, corruption, criminal activity, have all been advanced as adequate grounds for applying the doctrine. Lender due diligence has also become a dynamic area as a general consensus moves from a regime of actual knowledge to one predicated on surveillance and intelligence gathering: lenders ought not to profit from their complicity in subsidizing the illegitimate governments or fund use. This doctrine has served the developed world, and its globalized lending institutions, well since the beginning of the 20th century: from proving the generosity of the developed world through discretionary debt forgiveness programs loosely based on odious debt principles, to the use of odious debt style principles to launch global anti-corruption campaigns. However, developing states have come to see another basis for application of odious debt, one that turns the traditional analysis on its head. One of its principal architects has been Fidel Castro. Focusing primarily on the writing of Fidel Castro, as an important figure in shaping and lending legitimacy to these transformations, it suggests the way the doctrine of odious debt, once so well tied to municipal law and sovereign rights and obligations of states, could be focused on the institutionalized public and private international systems of capital markets. Since 1985, Castro has advanced the idea that this paper labels "systemic odiousness" as a basis for repudiation. Going forward, sovereign lending ought to be governed by an international human right of development with the goal of eliminating power disparities between states and reducing the political, social, and cultural effects of power disparities in the current regime of globalized financial markets. The paper suggests how, for Cuba, this produces a curious result. It is possible that a successor regime to that currently installed in Cuba would argue that it has the right to avoid all of the debts of the prior Marxist-Leninist state on traditional odious debt grounds, while, at the same time, adhering to the odious debt principles of that discredited regime, it attacks the legitimacy of the current system of state lending on odious debt grounds. The paper ends with a preliminary consideration of ramifications. While a muscular doctrine of odious debt has extraordinary potential as a means of reshaping the sovereign debt markets, it also has the potential to strengthen sovereign lending as well, lending that may ultimately be even more profitable for the institutions of capital generating states. The doctrine of systemic illegitimacy in the sovereign debt/odious debt context will be good for business that is good for the business of modern so-called neo liberal global capital markets in general, and for the business of lending to sovereigns, in particular.
Keywords: globalization, sovereign debt, odious debt, World Bank, Cuba, transnational legal systems
JEL Classification: F02, F33, H63, H87, K33, N26
Suggested Citation: Suggested Citation