The odious debt doctrine after Iraq

Law and Contemporary Problems

Volumn 70, Issue 4, 2007, Pages 139-155

  Damle, Jai ^a  

^a DUKE UNIVERSITY   (United States)

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EID: 43049151158     PISSN: 00239186     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (84)

1. The characteristics of odious debt have been discussed extensively in the literature. The definition that has gained considerable acceptance, and which is discussed here, was forwarded by Russian scholar Alexander Sack in 1927. Anna Gelpern, What Argentina and Iraq Might Learn from Each Other, 6 CHI. J. INT'L L. 391, 403 (2005) (discussing the'Sackian definition of the odious debt doctrine). This note will not examine the difficult questions surrounding the determination of whether a debt is odious, but will rather focus on the motivations and implications of the doctrine's invocation.
2. Several of these proposals are discussed in Part II. For detailed discussions of the contours of the doctrine in its classic formulation, see ASHFAQ KHALFAN, JEFF KING & BRYAN THOMAS, CENTRE FOR INTERNATIONAL SUSTAINABLE DEVELOPMENT LAW, ADVANCING THE ODIOUS DEBT DOCTRINE(Mar. 2003), available at http://www.odiousdebt.org/ odiousdebts/publications/Advancing_the_Odious_Debt_Doctrine.pdf.
3. U.S. Chief Justice Taft's canceling of debt incurred by Costa Rican President Federico Tinoco in 1923 is often cited as the most recent direct application of the doctrine. See, e.g., Jubilee Iraq, Odious Debt, http://www.jubileeiraq.org/odiousdebt.htm (last visited Feb. 15, 2007) (listing the Tinoco arbitration as the most recent precedent-creating event for the odious debt doctrine). Although there are other cases that may have involved arguments for repudiation based onodiousness, the doctrine itself has not received explicit support from international or domestic tribunals since the tinoco decision.
4. Nicole Itano, Apartheid Victims Point a Finger at Multinational Firms, SEATTLE TIMES, Nov. 26, 2002, at A3.
5. As discussed in Part III, the calls to implement the doctrine came not only from political punditry, but also from key officials within the U.S. administration and WorldBank.
6. E.g., IN THE NAME OF PROGRESS: THE UNDERSIDE OF FOREIGN AID (1985);
7. ODIOUS DEBTS LOOSE LENDING, CORRUPTION AND THE THIRD WORLD'S ENVIRONMENTAL LEGACY (1991).
8. Patricia Adams, Iraq's Odious Debts 12 (Cato Inst., Policy Analysis No. 526, 2004), available at http://www.cato.org/pubs/ pas/pa526.pdf.
9. Id.
10. Id. at 11.
11. Id. at 12.
12. Joseph Stiglitz, Odious Debts, Odious Rulers, ATLANTIC MONTHLY, Nov. 2003, at 42.
13. Dr. Stiglitz characterizes the Suharto regime as corrupt, id., a characterization widely shared in the international community. For example, Transparency International, a non-profit organization that describes itself as fighting corruption, named Suharto the most corrupt leader of the past twenty years. Press Release, Transparency Int'l, Plundering Politicians And Bribing Multinationals Undermine Economic Development (Mar. 25, 2004), available at http://www.transparency.org/content/download/4450/26759/file/ GCR_2004_press_release_FINAL.pdf.
14. Stiglitz, supra note 11, at 42.
15. Dr. Stigliz provides several examples, including debts incurred-by Seske Mobutu in the Congo and South Africa's apartheid-era obligations. Id. at 42-43.
16. Id. at 45.
17. Id.
18. Patrick Bolton & David A. Skeel, Jr., Redesigning the International Lender of Last Resort, 6 CHI. J. INT'L L. 177, 178 (2005).
19. Jonathan Shafter, The Due Diligence Model: A New Approach to the Problem of Odious Debts, 21 ETHICS & INT'L AFF. 49 (2007).
20. An earlier draft of this article named Seema Jayachandran and Michael Kremer as co-authors. See Applying the Odious Debts Doctrine While Preserving Legitimate Lending, http://www.stanford.edu/~jayachan/ applying_odious_debt.pdf.
21. Gelpern, supra note 1.
22. Id.
23. Id. at 400.
24. Of course, even before getting to a debt-by-debt analysis, Iraq and its creditors would have had to settle upon rules by which to measure odiousness, a complicated task in itself.
25. Gelpern, supra note 1, at 401.
26. Id.
27. MARTIN A. WEISS, CONG. RESEARCH SERV., IRAQ'S DEBT RELIEF: PROCEDURE AND POTENTIAL IMPLICATIONS FOR INTERNATIONAL DEBT RELIEF 1 (Apr. 21, 2006), available at http://fpc.state.gov/documents/organization/ 65761.pdf.
28. Here, however, the debt will & addressed in only two sections, Paris Club and non-Paris Club. Because Iraq completed its negotiations with the Paris Club first, both the commercial and bi-lateral debt restructurings were subject to the Paris Club's comparable treatment requirement, discussed infra Part III.A. Therefore, the terms of restructuring of all the non-Paris Club debt were largely set by the Paris Club negotiations.
29. Id.
30. Paying for Saddam's Sins, ECONOMIST, May 17, 2003, at 68. The estimates varied to such a large extent because of country creditors' differing treatment of interest and penalties due. There was also disagreement about whether interest could legitimately be charged at all for debt initiated after 1990, when the U.N. imposed sanctions on Iraq.
31. WEISS, supra note 25, at n.1.
32. S.C. Res. 1546, ¶ 28, U.N. Doc. S/RES/1546 (June 8, 2004).
33. S.C. Res. 1483, ¶ 22, U.N. Doc. S/RES/1483 (May 22, 2003).
34. Paris Club, Rules and Principles, http://www.clubdeparis.org/en/ presentation/pregentation.php? BATCH=B01WP04 (last visited Sept. 5, 2006).
35. Perhaps a member country could benefit in a particular circumstance from stepping outside of the Paris Club-negotiated terms, though it would likely result in other Paris Club members receiving less, or nothing, in any given restructuring. Paris Club creditors are repeat players, and unilateral action by a country would have negative repercussions for later renegotiations. It is more beneficial in the long term for members to adhere to the Club's negotiated terms.
36. Paris Club, Rules and Principles, supra note 30.
37. The first listed principal of the Paris Club is renegotiation bn a case-by-case basis. Id. In an overview of the Evian Approach, discussed infra, the Club highlights its interest in increasing transparency of the renegotiation process to private creditors. Paris Club, Evian Approach, http://www.clubdeparis.org/sections/ termes-de-traitement/approche-d-evian (last visited Apr. 5, 2007).
38. Paris Club Members Adapt to New Rules, EUROMONEY, Sept. 2005, at 206, 206-11.
39. In 1999, the IMF and World Bank launched an initiative aimed at providing more extensive debt relief to countries qualified as Heavily Indebted Poor Countries, (HIPCs). The Paris Club participated in this initiative, and therefore HIPCs have received preferential treatment in Paris Club restructurings compared to more developed, affluent countries. Iraq, with its significant oil resources, does not qualify as an HIPC.
40. The Paris Club approved "Naples" and "Cologne" terms for HIPCs in 1994 and 1999, respectively, and "Houston" terms for lower-middle-income countries in 1990. Paris Club, Standard Terms of Treatment, http://www.clubdeparis.org/en/presentation/ presentation.php?BATCH=B02WPO3.
41. For a discussion of the Evian terms and the U.S. role in developing them, see WEISS, supra, note 25, at 7-8.
42. Paris Club Members Adapt to New Rules, supra note 34.
43. MARTIN A. WEISS, CONG. RESEARCH SERV., IRAQ: PARIS CLUB DEBT RELIEF 3 (Jan. 19, 2005);
44. see also Jubilee Iraq News, The Paris Club's New Evian Approach, http://www.jubileeiraq.org/blog/2003_10.html (last visited Aug. 13, 2007).
45. How the Iraq Deal Was Done, EUROMONEY, Sept. 2005, at 206.
46. Id.
47. Press Release, The White House, Statement on Iraq's Debt Burden (Dec. 16, 2003), available at http://www.whitehouse.gov/news/releases/ 2003/12/20031216-8.html.
48. ESTHER PAN, COUNCIL ON FOREIGN RELATIONS, IRAQ:, THE REGIME'S DEBT, http://www.cfr.org/publication/7796/ (last visited Aug. 25, 2007).
49. How the Iraq Deal Was Done, supra note 40.
50. See, e.g., Online News Hour, Iraq Contract Policy Complicates Planned Debt Talks, http://www.pbs.org/newshour/updates/ iraq_12-12-03.html, Dec. 12, 2003 (reporting President Bush's response to questions regarding the strategy for the then-upcoming Iraqi debt relief discussions: "I asked [French] President Chirac and Chancellor Schroeder and [Russian] President Putin to see Jim Baker to talk about debt restructing. If these countries want to participate ... in helping the world become more secure, by enabling Iraq to emerge as a free and peaceful country, one way to contribute is through debt restructuring").
51. E.g. Press Release, The White House, Statement on James A. Baker III (Dec. 5, 2003), available at http://www.whitehouse.gov/news/ releases/2003/12/20031205-3.html.
52. Joanna Chung & Stephen Fidler, Restructuring Under Fire: Why Iraqi Debt Is No Longer a Write-Off, FIN. TIMES, July 17, 2006, at 15 (quoting Iraqi Finance Minster Ali Allawi).
53. WEISS, supra note 25, at 8.
54. Id.
55. Id. As with the original estimates of the Iraqi debt, mer tallies of pre- and postrestructuring debt amounts differ. For example, a recent article pegged the original debt owed to the Paris Club at $36.6 billion and the write-off reducing the burden to $11.5- billion.
56. Richard Jory, Seeking Sovereign Agreements, INT'L FINANCING REV., Feb. 5, 2005.
57. Chung & Fidler, supra note 47, at 11;
58. WEISS, supra note 48, at 4. Again, debt estimates vary significantly; Iraq's non-Paris Club debt has also been estimated at $74.6 billion, with commercial creditors holding $15.0 billion.
59. Jory, supra note 50.
60. The notes have a face value equal to twenty percent of the original amount owed, mirroring the Paris Club deal. Kathryn Wells, Iraq Restructures Saddam Debt, EUROMONEY, Feb. 2006, at 1.
61. Id,
62. INTERNATIONAL MONETARY FUND, IMF COUNTRY REPORT No. 07/115 26 (Mar. 2006), http://www.imf.org/external/pubs/scr/2007/cr07ll5.pdf.
63. Id.
64. Under the classic formulation of the odious debt doctrine, absence of benefit from the debt proceeds is one part of a three-prong test to determine odlousness. Although as Lee Buchheit, Mitu Gulati, and Robert Thompson note, there has been an informal relaxation of this requirement in academic literature, and some now advocate for all debts incurred by an odious regime to be unenforceable. See Lee Buchheit, Mitu Gulati & Robert Thompson, The Dilemma of Odious Debts, 56 DUKE L.J. 1201, 1201 (2007). However, as there has not been another formulation of the doctrine offered, the odious-use prong will be assumed to carry weight for the purposes of this note.
65. James Eades, Nigeria: At The Mercy Of Debt: Nigeria's Finance Minister Is Campaigning Hard For Debt Relief For The Country And Finding Plenty Of Sympathy But Little Action So Far, THE BANKER, Mar. 1, 2005, at 118.
66. Id.
67. Nigeria to Get $18bn Debt Relief, ECONOMIST, June 30, 2005, available at http://news.bbc.co.uk/1/hi/business/ 4637395.stm.
68. Eades, supra note 57.
69. Debt; The Debt Question, AFRICA NEWS, Mar. 27, 2005.
70. Id.
71. Nigeria was removed from the HIPC list in 1998. Some believe this was due to the high cost creditors would incur if Nigeria were to receive Paris Club HIPC treatment, Jubilee Research, What is the HIPC Initiative?, http://www.jubileeresearch.org/hipc/what_is_hipc.htm (last visited Dec. 14, 2006), while others attribute the declassification to a technicality, Center for Global Development, Nigerian Debt Relief Now a Done Deal: Q&A with Todd Moss, Apr.I24, 2006, http:/iwww.cgdev.org/ content/opinion/detail/7423/ (last visited Aug. 30, 2007).
72. Press Release, Paris Club, Nigeria (Oct. 20, 2005). http://www.clubdeparis.org/en/press_release/ page_detail_commupresse.php?FICHIER=com11297988840.
73. E.g., Center for Global Development, Nigerian Debt Relief Now a Done Deal: O&A with Todd Moss, Apr. 24, 2006, http://www.cgdev.org/ content/opinion/detail/7423/ (characterizing the Nigerian debt relief agreement as "absolutely historic") (last visited Aug. 30, 2007);
74. Nigeria to Get $18bn Debt Relief, supra note 59 (quoting British international development minister Hilary Benn describing the deal as a "major step in bringing a better future for the people of Nigeria").
75. Press Release, Jubilee USA Network, Nigerian Threat to, Repudiate Helps Force Paris Club to Deliver Debt Cancellation (Oct. 20, 2005), http://www.odiousdebts.org/odiousdebts/index.cfm?DSP= content&ContentID=13931.
76. Id. (quoting Sony Kapoor, Senior Advisor at Christian Aid, U.K.).
77. Stiglitz, supra note 11, at 42.
78. For a discussion of the definitional problem, see Patrick Bolton & David Skeel, Odious Debts or Odious Regimes?, 70 LAW & CONTEMP. PROBS. 83 (Autumn 2007).
79. Simon Robinson, How Wolfowitz Is Struggling to Lead the World Bank, TIME, Sept. 20, 2006, available at http://www.time.com/time/world/article/0,8599,1537088,00.html.
80. E.g., BRETTON WOODS PROJECT, BANK ANTI-CORRUPTION FRAMEWORK: "A LOT OF RHETORIC AND ARM-WAVING?, http://www.brettonwoodsproject.org/art.shtml?x=542334 (last visited Aug. 30, 2007).
81. The World Bank's Anti-Corruption Effort Has Critics on the Inside, ECONOMIST, Sept. 16, 2006, at 85, available at http://www.economist.com/finance/displaystory.cfm?story_id=7914921.
82. Krishna Guha, Norway Debt Cancellation Hailed by Activists. FIN. TIMES, Oct. 5, 2006, at 43.
83. Lester Pimentel, Ecuador, Calling Debt Illegitimate,' May Repay 40%, BLOOMBERG.COM, Jan. 18, 2007, http://www.bloomberg.com/ apps/news?pic=20601013&sid=aLG4apBIPUpO&referemergingmarkets.
84. Monte Hayes, Ecuador to Try and Make Debt Payment, INT'L BUS. TIMES, Jan. 17, 2007, http://www.ibtimes.com/articles/20070117/ ecuador-debt-payments.htm (last visited Aug. 25, 2007).