Debt and HIPC
The concept of odious debt: some considerations
Should heavily indebted countries have to pay back “odious” debt?
Authors:
V. Nehru
Publisher:
World Bank, 2007
Non-governmental and civil society organisations have increasingly called for the cancellation of “odious” debt for developing countries. This paper by the World Bank discusses the concept of odious debt and argues that there are a variety of existing mechanisms which allow indebted countries to restructure their debt.
The paper begins by discussing the main features of the traditional concept and categories of odious debts, and briefly examines whether a rule allowing the rejection of such debts may be said to have emerged in international law. The section argues that:
- the traditional concept of odious debts is not open-ended but is instead restricted to easily identifiable categories (war, subjugation and regime debts), discussed within the context of the succession of states or governments
- no customary international rule allowing the repudiation of odious debts seems to have emerged from the scattered instances of state practice and arbitral decisions, nor has any codification treaty embodied an exception based on the odiousness of the debt
- proposals to declare ex ante that certain regimes are “odious” have their own weaknesses, some practical and some conceptual, and have consequently attained little traction
The second section of the paper explores recent attempts to expand the traditional concept and categories of odious debts, such as criminal debts, unfair debts and ineffective debts. It argues that these categories often overlap and lack clarity. This lack of precision, and various practical problems, make it difficult to accept the expanded concept of odious debts.
The paper concludes by identifying ways in which lenders and borrowers can address, or have addressed, the underlying concerns to the concept of odious debts. In particular, it argues that lending agencies need to have structures in place to reduce corruption and ensure that loans are used for productive purposes. This section also discusses the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI), which together are expected to provide significant debt reduction to the poorest, most heavily indebted countries of the world.
