By Zekrie Negatu 

Odious debt, also known as illegitimate debt, arises when  a country’s government misappropriates money  it has borrowed from other countries. A nation’s debt is considered odious  debt when  government leaders use borrowed funds in ways that do not benefit their citizens,  and to the contrary, use the resources so obtained to oppress their people. Some legal scholars argue that, for moral reasons, these debts should  not have to be repaid, writes Zekrie Negatu.

A few years  back,  I jokingly  asked  a lawyer friend   of  mine   to   do   some   background research for me on the meaning and validity of the  odious  debt  argument in the  context of international law. When  he asked  about my  need   for  such  a  research,  my lighthearted  -  although  bitter  -  response was  that  I intend to  press  charges  against Ethiopia’s    unprincipled   lenders   at    an 

international court   if  and  when  the  current  government falls  and  is  replaced by  a popularly elected  government. The period  was when  the  revolutionary democrats were particularly projecting an aura  of invincibility while the opposition parties were in their most  pathetic state  of disorganization. This was a time  of general  despair and  cynicism and I was not surprised when I became  the butt  of a joke at that  particular coffee break.

To put  it mildly,  the  unspoken response to  my plan  to  take  Ethiopia’s lenders to  the international courts  was that  it is an impractical idea bordering on a quixotic  daydream. At the  time,  both  the  pundits and  amateur political  analysts like us  believed  that  the revolutionary democrats were here  to stay and  the rest  of the world will never  mend  its ways.

The conventional wisdom  was that  the  powerful  nations will always  turn  a blind eye on the misdeeds of those which they consider as ‘their own crooks’.

The big and  powerful  democratic nations of the world  have been  financing and  lending invaluable diplomatic cover to the revolutionary democrats over the last 27 years.

 Some of its Western supporters were the  savviest  of all the  government’s apologists – always ready to jump  to the government’s defense  and subtly point  out to its detractors that  the government’s success  in bringing economic growth  outweighs its abysmal  performance in the  area  of human rights.  Now that  the  full scorecard of their  protégé is out  in the public  and  Ethiopians have started speaking out  boldly,  it would  be interesting to hear what these apologists have to say to the Ethiopian people. At the  personal level, two  recent developments prompted me  to  think  - once  again - about   the  odious  debt  issue  and  write  this  piece.  The  first  was  Prime  Minster Abiy Ahmed’s (PhD)  statement at the parliament where  he boldly and  honestly stated that  it was the government which  was the real terrorist when  it comes  to dealing  with its own people.   The  second   was  the  recent  documentary by  the  Ethiopian  television which narrated the outrageous misuse  of funds  and  hard-earned resources by those  in power. The documentary made  it quite  clear that  huge amounts were squandered by the powers to be in so many  self-serving white  elephant projects leaving  the poor  Ethiopian people and future generations to pick the tab of a huge national debt.

The  pressures  created on  the  country  by  the  loan  burden are  already   visible.  For example, while there  could be multiple reasons behind the recent steps  taken  to prepare some  of our  high-profile companies like  the  Ethiopian Airlines  for  privatization, the major   motivation  seems   to  be  obtaining  resources  for  servicing   maturing  loans   by converting these national assets  into cold cash.

  The odious debt argument

Odious  debt,  also known  as illegitimate debt,  arises  when a country’s government misappropriates  money   it  has   borrowed  from   other   countries.  A  nation’s  debt   is considered odious  debt  when  government leaders use  borrowed funds  in ways that  do not  benefit  their  citizens,  and  to the  contrary, use the  resources so obtained to oppress their  people.  Some legal scholars argue  that,  for moral reasons, these  debts  should  not have to be repaid. The argument continues that  the lending  countries must  have known, or  should  have  known,  about  the  oppressive conditions upon  offering  the  credit  and should  be held responsible for their  actions. Some academics even go further: they argue that   successor  governments  should   not   be  liable   for  the   odious   debt   that   earlier dictatorial regimes  have accumulated and passed down to them.

Does the odious  debt  argument really hold  in international law? Both my lawyer friend and  my readings on the subject  tell me that  it is at odds  with international law. That  is too bad for the Ethiopian people.  But does it weigh on the moral  scale? I bet it does!

Lawyers are very practical people.  They want to keep international capital  markets well- oiled  and  running smoothly. They fear  that  legitimizing the  odious  debt  argument can create  a potential morale  hazard where  successor governments (which  in  some  cases may not  be even better than  their  predecessors) may use it to wriggle out  of legitimate obligations. But there  are also examples where the full moral  weight of the argument was crystal  clear – at least for people  who have high moral  standards. One relevant example jumps   out   of  the   pages   of  history:  the   apartheid-era  government  of  South   Africa borrowed heavily  and  used  the  funds  to  repress the  African  majority in  the  country. Upon  the  demise  of the  Apartheid system,  many  people  rightly  felt that  the  huge  debt accumulated by the  Apartheid regime  should  be treated as odious  debt.  But President Nelson  Mandela, in his characteristic magnanimity and  pragmatism, ultimately decided to pay the debt to avoid scaring  badly needed foreign investment.

I hope  that  the  next  government, which  we all hope  will be a genuinely and  popularly elected  one,  will  learn  a  lesson  from  this  and  play  its  cards  well  when  it  sits  for  a negotiation with  our  creditors.  In  the  meantime, the  government of PM Abiy Ahmed should  resist  the pressure and  delay, as much  as possible, putting the family silver on a fire sale in order  to meet  these  obligations. While privatization can be justified on other grounds, it  should   not  be  motivated by  a  desperate need  for  temporary relief  from debtors who should  have known better when extending the loans.

 Finally,  can our creditors honestly and  convincingly argue  that  they did not know about conditions in Ethiopia and  how funds  were possibly  misused by the  incumbents?  I am sure they can’t. As my closing argument, I cite the periodic US State Department Reports on the  state  of human rights  in Ethiopia and  the  publications by so many  independent international organizations on the  possible  size of illicit funds  flowing out  of this  poor country. I rest my case.

Ed.’s Note: Zekrie Negatu is Director of Corporate Finance and Executive  Development at HST Consulting. The views  expressed in this article are that of the writer alone and not  reflect the views  HST and The Reporter. He can be reached at  zekrie.negatu@hst-et.com

Contributed by Zekrie Negatu