Felonious, Erroneous, It’s All Odious: A Story of Debt Gone Wrong

November 1, 2015

Iraq is paying off debt from Saddam Hussein’s rule. South Africa is paying off debt obligations incurred under apartheid rule. Argentina is renegotiating debts that can be traced back to a de facto military-civilian regime that was ousted in 1976. There are numerous examples in which sovereigns are paying off debts that previous governing regimes incurred while oppressing their citizens. Should sovereigns be obligated to pay these debts? Were the debts really incurred by the sovereign or were they incurred by the governing regime in question? What if the lender knew in advance what the proceeds would be used for?

The doctrine of odious debt seeks to resolve this dilemma. It proposes that sovereigns should not have to pay back debts that were incurred without the consent of the people and for purposes that do not benefit the people, provided that the lender was aware of each of these conditions. The doctrine itself is almost a century old, but sovereigns have yet to embrace it due to fear of the repercussions. Scholars have proposed ex ante and ex post mechanisms to apply the doctrine, but none have been accepted to date. This Note proposes a unique solution that seeks to identify odious expenditures before debt proceeds are entirely exhausted by a regime, providing a remedy that falls between the traditional ex ante and ex post solutions.

November 2015

No. 2