Alexander Sack was a minister in Tsarist Russia. After the Russian Revolution he set up shop as a law professor in Paris. In 1927, he proposed the concept of odious debt.
He wrote: “If a despotic power incurs a debt not for the needs or in the interest of the state, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the state.”
In such a case, argued Sack, the debt belonged to the regime that incurred and not the people of the country. So, if the tyrant is toppled, the debt should be toppled with him.
Anti-poverty Activists Invoke Odious Debt Concept
Sack’s proposal lay dormant for 70 years until people working to relieve poverty in the Third World began suggested using it.
Their argument was that many dictators in South America, Africa, and elsewhere had taken on debt in the name of national development but had diverted much of the money to private bank accounts in tax havens.
As Graeme Smith reports in the Globe and Mail (November 21, 2011) the anti-poverty activists said “that when a lender knowingly gives money to a corrupt or dictatorial regime for purposes that don’t benefit the country, the debt should be erased when the tyrant falls.”
“Iraq invoked the term to shrug off the debts of Saddam Hussein…” Similarly, Ecuador employed the same logic in 2008.
The anti-poverty group Jubilee USA is quite clear that, “Odious debt is an established legal principle” and that those that extend credit to corrupt and villainous regimes “cannot legitimately expect repayment of such debts.”
Is Greece Able to Us the Odious Debt Argument?
The level of corruption in Greece has been well established. In its 2010 report, Transparency International identified Greece as the most corrupt country in Europe. In September 2010, the German newspaper Bild wrote that the TI report “reveals that on average every Greek paid €1,355 ($1,910) in bribes in 2009…” The kickbacks were paid to speed up hospital treatment, building permits, driver’s licences, and such.
The head of Greece’s left-wing party Syriza, Alexis Tsipras, is calling on the government to renounce some of its debt because, as Graeme Smith writes in the Globe and Mail, this is “the only fair outcome after the ‘orgy of corruption’ in recent years. His party calls for an audit of the debt, to determine which loans were handed out improperly.” Tsipras maintains that some of the money Greece borrowed to finance the Olympic Games and unnecessary military purchases was diverted through corrupt deals.
Others Looking at Odious Debt
Peter Matthews is a Member of the Irish Parliament. In October 2011, he wrote an article that was published in The Independent in which he pointed out that Irish banks borrowed huge amounts of money to pay off bondholders.
“Clearly, this was inappropriate,” he wrote, “and therefore…half the money owed by the banks to the European Central Bank and Irish Central Bank is odious debt. Through a political chain of events, it has ended up on the backs of Irish citizens. This is patently unfair.”
In England, George Monbiot of The Guardian argues that much of a £267 billion ($433 billion) debt was incurred through false pretences under a program called the private finance initiative (PFI). This was money put up by banks and corporations to finance the building of hospitals, schools, and other public infrastructure.
Under iron-clad contracts, the National Health Service is required to pay £50 billion ($81 billion) for buildings that cost only £11 billion ($17.8 billion) to build. Monbiot blames the Labour government of Tony Blair for this situation: “The cost and inflexibility of PFI is an outrage, a racket, the legacy of 13 years of New Labour appeasement…and false accounting.”
Monbiot’s solution is to declare the debts “odious” and cancel them.
Sources
- “What Are Odious Debts?” odiousdebts.org, undated.
- “A New Euro Crisis Strategy: Deny the Debt.” Graeme Smith, Globe and Mail, November 21, 2011.
- “G-8 Summit 2004 Iraq’s Odious Debt: Rhetoric to Reality.” Jubilee U.S.A., undated.
- “ECB Must Write down this €75bn Odious Bank Debt.” Peter Matthews, The Independent, October 16, 2011.
- “The Bill for PFI Contracts is an Outrage. Let us Refuse to Pay this Odious Debt.” George Monbiot, The Observer, November 22, 2010.
Rupert Taylor - Rupert Taylor is the editor of a magazine that provides background to current events.
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