Odious Debt
Odious debt is a doctrine holding that a state should not be bound to repay debt that a previous regime incurred without the people's consent and against their interests, where the lenders knew this. It is an argument, not settled international law.
Also called: odious debts · illegitimate debt · doctrine of odious debt
The idea was set out by the jurist Alexander Sack in 1927. He proposed three tests: the debt was contracted without the consent of the population, it brought them no benefit, and the creditor was aware of both. Debts raised to fund repression or personal enrichment by a despotic government are the standard examples.
No international court has adopted the doctrine as a rule, and governments rarely rely on it formally, because repudiating debt damages a country's access to credit whatever the justification. It works instead as a moral and political argument in restructuring negotiations and in campaigns for debt relief. Related terms, illegitimate debt and illegal debt, are used more loosely for obligations seen as unjust or irregularly contracted.
The concept is often discussed alongside the indemnity France imposed on Haiti in 1825 as the price of recognising its independence: 150 million francs, later reduced to 90 million, which Haiti borrowed from French banks to pay and serviced for generations. It also bears on lenders today. Financing a government that is under sanctions or lacks recognised authority carries the risk that a successor will dispute the debt.
In practice
Whether a specific debt is enforceable is decided by the governing law of the contract and the courts named in it, not by the doctrine.
See also
- International Monetary FundThe International Monetary Fund (IMF) is the international organisation of more than 190 countries that monitors the global monetary system, lends to members that cannot meet their external payments, and issues the Special Drawing Right.
- Foreign Exchange ReservesForeign exchange reserves are the foreign-currency assets a central bank holds and can use at short notice: deposits and government securities in major currencies, gold, Special Drawing Rights and the country's reserve position at the IMF.
- Current Account BalanceThe current account balance is the net of what a country earns from and pays to the rest of the world for goods, services, investment income and transfers such as remittances. A deficit must be financed by borrowing, investment inflows or reserves.
- Sanctions ScreeningSanctions screening is the checking of customers, counterparties and payment messages against sanctions lists and watchlists — at onboarding, repeatedly afterwards, and on payments while they are still in flight — and the holding or rejecting of anything that genuinely matches.
- Hard CurrencyA hard currency is one that is widely accepted for international payment, freely convertible and expected to hold its value, such as the US dollar, euro, yen, pound sterling or Swiss franc. Suppliers abroad generally insist on being paid in one.