ODIOUS DEBT

• Public-Sector Debt Definition

1. Definition

   • "Odious debt" is a legal principle found in international law. The principle states that, if the government obtained a debt for the personal gain of its leaders in a manner which oppressed the people of that nation, then the debt is considered to be odious. An example of odious debt occurred after the United States seized Cuba from Spanish rule at the end of the Spanish-American War. The Spanish insisted that Cuba's debts to Spain be repaid, however, the United States government refused on the basis the debt was incurred by use of force of arms, in other words that it was an odious debt.

   Ownership

   • The ownership of odious debt is considered to be that of the person or people who enforced the doctrines and laws under which the debt was incurred. However, in reality, those debts will never be paid because often those people in power in government regimes are overthrown, seized, executed, or continue to refuse to pay.
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   Creditors

   • Creditors often continue to extend loans to poor countries even when they know that the basic needs of the citizens are not being met. Because of this, many people see the creditors as willing participants in the risk they are undertaking. If a creditor lent money to a company which the creditor knew was barely able to keep its doors open, the lender would have a hard time recovering even a fraction of the money lent as the company went through the bankruptcy process. The first reason is because the company cannot pay the debt, and secondly, they were promised handsome terms if the company could pay at some point. This ratio of risk and reward is one of the basic principles of investment.

   Forgiveness

   • It is not uncommon for political action groups to lobby that odious debts be relieved for some of the poorest countries in the world. The two main criteria that some of these groups use is called the Doctrine of Odious Debts. The doctrine states that to be odious debt , the money must have been spent without the consent of the people, and that the people did not benefit from the money which was spent. Also, the lender must have been aware of these circumstances. If a country's debt obligation was wholly or partially obtained under those circumstances, forgiveness may be considered from the country that lent the money.

   Arbitration

   • In the same manner that people arbitrate their personal differences, arbitration can be sought by two countries to try to settle the debt owed. Because there is no international court system responsible for handling such matters, the arbitration must be agreed to by the countries in question. The United Nations may lend a hand in such negotiations if the countries agree.

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