Document Type

Working Paper

Publication Date

3-21-2009

SSRN Discipline

Legal Scholarship Network; LSN Subject Matter eJournals; Law School Research Papers - Public Law & Legal Theory

Abstract

Odious debts have been the subject of debate in academic activist and policy circles in recent years The term refers to the debts of a nation that a despotic leader incurs against the interests of the populace When the despot is overthrown the new governmentunderstandablydoes not wish to repay creditors who helped prop up the despot One argument has focused on whether customary international law supports a doctrine of odious debts that justifies nonpayment of sovereign debts when three conditions are met 1 the debts were incurred by a despotic ruler without the consent of the populace 2 the funds were used in ways that did not benefit the populace and 3 the creditors were aware of the likely illegality of the loans Advocates of this doctrine which was synthesized by Alexander Sack in 1927 typically cite two examples of US state practice for support the negotiations between the United States and Spain following the SpanishAmerican War in which the United States repudiated Cubas colonial debt and the Tinoco Arbitration which repudiated certain debts of the deposed Costa Rican dictator Frederico Tinoco Those historical precedents do not support the first condition of Sacks doctrine of odious debts but do support the second two requirements In addition to these two instances United States history is rich with examples of debt repudiation by states Those examples suggest a doctrine of odious debts that is broader and more flexible than the one written by Sack Indeed it may be appropriate to speak of the doctrines not just doctrine of odious debts

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