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 debtwhen 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.
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A few years back, I jokingly asked a lawyer friend ofminetodosome background research for me on the meaning and validity of the odiousdebt argument in the context of international law. When heasked aboutmy needforsucha research, my lighthearted - although bitter - response was that I intend to presscharges againstEthiopia’s unprincipledlendersatan
internationalcourt ifandwhenthecurrent governmentfalls andis replacedby a popularly elected government. The period waswhen the revolutionary democrats were particularly projecting an aura of invincibility while the opposition parties were in their most patheticstate of disorganization. This was a time ofgeneral despairand cynicism and I was not surprised when I became thebutt of a joke at that particular coffee break.
To put it mildly, the unspoken response to myplan to take Ethiopia’s lenders to the international courts wasthat it is an impractical idea bordering on a quixotic daydream. At the time, both the punditsand amateurpolitical analysts like us believedthat the revolutionary democrats were here to stay and therest of the world will never mend its ways.
The conventional wisdom wasthat thepowerful 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 havebeen financingand 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 theodiousdebtissueandwritethis 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 itcomes todealing with its own people. The secondwastherecent documentaryby theEthiopian television which narrated the outrageous misuse offunds and hard-earned resources by those in power. The documentary made itquite clearthat huge amounts were squandered by the powers to be in so many self-servingwhite elephant projects leaving the poor Ethiopian people and future generations to pick the tab of a huge national debt.
The pressures createdon thecountrybytheloan burdenare already visible. For example, while there could be multiple reasons behind the recent steps taken to prepare some ofour high-profile companies like the Ethiopian Airlines for privatization, the major motivationseemstobeobtainingresourcesforservicingmaturingloans 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 moneyithasborrowedfromother countries. A nation’s debt is considered odious debtwhen government leaders use borrowedfunds in ways that donot benefittheir citizens, and tothe contrary, use the resources so obtained to oppress their people. Some legal scholars argue that, for moral reasons, these debtsshould not have to be repaid. The argument continues that thelending countriesmust have known, or shouldhave known, about the oppressive conditions upon offeringthecredit andshould be held responsible for their actions. Some academics even go further: they argue that successorgovernmentsshouldnotbeliablefortheodiousdebtthat 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 legitimizingthe odiousdebt argument can create a potential morale hazardwhere successor governments (which insome 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 outofthepagesof history: the apartheid-eragovernment of South Africa borrowed heavily andusedthefundsto repress the African majorityin the country. Upon thedemise of the Apartheid system, many peoplerightly feltthat thehuge 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 thatthenext government, which we all hope will be a genuinely and popularlyelected one, will learn alesson fromthisandplayitscardswellwhenitsitsfora negotiationwith 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 tomeet these obligations. While privatization can be justified on other grounds, it shouldnotbe motivatedby a desperate need for temporaryrelief from debtors who should have known better when extending the loans.
Finally, can our creditors honestly and convincinglyargue that they did not know about conditions in Ethiopia and howfunds werepossibly 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 flowingout ofthis 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