Odious debt

(This article is from Daily FT)

Sarath De Alwis

The Daily FT of 10 January published the shared wisdom of 182 academics and activists. This concerned collective included some renowned economists and assorted academics of distinction – ‘International academics speak out on dealing with Sri Lankan debt’. The incisive and fervent perspective of these eminent minds has failed to resonate with the cognoscenti tracking our progress with the IMF.

This statement refers to the ‘Odious Debt’. The key observation where the term appears is as follows:

“Lack of transparency of the debt negotiation process and accountability of the holders of ISBs underscores the concern that risky lending to corrupt politicians (leading to what is now recognised as ‘odious debt’) was a significant element in generating the current debt crisis. Apart from revealing the identity of ISB holders, it is also important to disclose how ISBs were deployed, and the use of those funds.”

The word odious implies disgusting, repugnant, and offensive. Are we burdened with disgusting, repugnant, and offensive debt?

It is a matter that deserves some careful audit and inquiry. ‘Odious Debt’ according to these thoughtful academics is the result of ‘Risky Lending to Corrupt Politicians.’

The Check writer Milan Kundera was quite right. The struggle of man against power is the struggle of memory against forgetting.

Since our present conundrum is to live in uneasy truce between that which is strictly legal and that which is not morally legit, pitting my memory against forgetting wasn’t too difficult.

In this digital age, googling for past wisdom, deceit and folly can be amazingly rewarding.

I vaguely recalled that the then Leader of the Opposition Ranil Wickremesinghe in the year 2007 warned international lenders against encouraging the profligacy of the then regime.

Voila! The Sunday Times of 26 August 2007 has run a story ‘US $ 500m bond: UNP warns foreign banks’.

“The UNP has written to three foreign banks informing them that a future UNP government would not honour the repayment of the proposed US $ 500 million bond to be taken by the Government, Opposition Leader Ranil Wickremesinghe declared. … by the time we pay back the loan in another decade, the amount would be as high as $ 850 million or Rs. 12,000 million making the nation a debtor for 10 long years to HSBC. … “HSBC has been told that the money is for expenditure on the Norochcholai power plant, the superhighway in the South, the Hambantota port and construction work of the Puttalam – Padeniya road, but there was no rationality in obtaining such a loan and paying so much. Mr. Wickremesinghe questioned whether the loan was for Rajapaksa’s Randora programme for which the poor people are to be made debtors to the tune of paying back Rs. 1350 per year per person.” (https://www.sundaytimes.lk/070826/News/nws5.html.)

In an Op-ed piece in the Sunday Times of 24 February 2013 the then Leader of the Opposition went on record.

“Fortunately, our Constitution does not allow the inalienable sovereignty of the people to be subordinated to the financial markets and the insatiable greed of racketeers. As pointed out, these loans, if incurred, will be invalid and we are not obliged to repay them. In this, the 1978 Constitution is based on the primacy of politics over the primacy of the markets.” (https://www.sundaytimes.lk/130224/news/betraying-the-doctrine-of-public-trust-34394.html)

The Doctrine of Odious Debt was advanced by a Russian Jurist Alexander Nahum Sack whose principal aim was to protect creditors and morality and ethics were far from his forensic mind. But he did refer to tyrannical rulers and blundering despots.

“If a despotic regime incurs a debt, not for the needs and in the interests of the State, but to reinforce its tyranny and to put down any resistance on the part of the people, then this debt is deemed odious for the population of the entire State. It is not an obligation of the nation: it is the debt of a regime, a personal debt of the power that incurred it. Consequently, it falls when the power falls.”

“The reason why such ‘odious’ debts cannot be considered as incumbent on the State is that they do not fulfil one of the prerequisites of State debts, namely that State debts must be contracted, and the funds that they provide utilised, for the needs and in the interests of the State.”

“The State is not liable for ‘odious’ debts incurred and utilised, with the knowledge of the creditors, for ends which are contrary to the nation’s interests, should that State succeed in ridding itself of the government that had incurred them.”

“The creditors have committed a hostile act with regard to the people; they cannot therefore expect a nation freed from a despotic power to take on the ‘odious’ debts, which are personal debts of that power.”   

These observations were penned in 1927. The world has moved on.  

Yanis Varoufakis the Economist and a former Minister of Finance of Greece is one of the Signatories of the statement which formed the point of departure of this missive on odious debt. In his book ‘Talking to My Daughter about the Economy: A Brief History of Capitalism’, he has a chapter titled – ‘The Marriage of Debt and Profit’. He begins this chapter on Debt and Profit by quoting the dark tale of how Faustus sold his soul to Mephistopheles the devil.