Odious Rulers, Odious Debt
In "Odious Rulers, Odious Debts" Stiglitz argues that debt forgiveness is in the international best interest (for both creditors and borrowers) and that an international structure for debt restructuring and relief is necessary. According to Stigliz, “Odious debts” are those incurred by a regime without political legitimacy, from creditors who “should have known better”. Such debt is often the product of oppression, where ironically, those oppressed end up being the ones asked to repay the debt. It is odious debt that will make debt relief in some states far from easy. In Iraq for instance, debt ranges from $60 billion to hundreds of billions, much of which are reparations imposed after the 1991 Gulf War from ammunition purchases and contracts signed under the corruption of Saddam Hussein. As Iraq attempts to rebuild in the wake of the current war, its financial legacy will make reconstruction difficult especially since any revenue it generates from oil purchases will go directly to international creditors. States such as France and Russia for instance, who are both owed large sums of money by Iraq, are not likely to pardon debt to rebuild an economy devastated by a war they opposed. Iraq is not alone when it comes to seemingly inescapable odious debts. Many states are in the same boat: Chie with debt from the Pinochet regime, South Africa from Apartheid, Argentina from the “dirty war” from 1976-1983, and Ethiopia from the Mengistu “Red Terror” regime.
In the wake of the formerly practiced strategy of invading a country with outstanding debt, in today’s global system, there is no procedure for the restructuring of government debts. Two years ago, the U.S. blocked an IMF initiative that would have bestowed the responsibility of the “bankruptcy judge” on the IMF. Today the United States continues to play to our best advantage, supporting debt forgiveness when other countries are owed money but arguing for full payments when our own money is at stake.
Stiglitz highlights that debt forgiveness makes as much sense for creditors as it does for the borrowers, noting that nobody gained from Latin American indebtedness in the 1980’s. According to Stiglitz, the solution is an international “bankruptcy” court: a neutral player to deal with debt restructuring and relief. Loans would be determined odious or benign depending on their purpose and the validity of contracts made. Governments lending money to oppressive regimes would be notified that their loans are high risk. According to Stiglitz, in today’s globalized world, U.S. unilateralism has costs. If the U.S. wants the international community to work cooperatively to restructure Iraq’s economy, the U.S. must be willing to give something as well: perhaps commit itself to a framework for addressing debt relief, odious debts and restructuring.
- stiglitz, Joseph E. “Odious Rulers, Odious Debts.” The Atlantic Monthly, September 10, 2003.