QuikSand
04-09-2003, 10:06 AM
Iraq's Odious Debt?
As the rebuilding of the Iraqi nation looms, there is a good deal more to the story than just building bridges, roads, and schools (the sort of thing we tend to think about as “rebuilding”). Indeed, Iraq is a financial basketcase, having borrowed its way through much of the last decade, and now faces a potentially crushing weight of debt.
This raises, in my mind and many others, a very challenging public policy issue. Do the people who loaned Saddam’s Iraq deserve to be repaid? Or should we revisit an old pseudo-doctrine of Odious Debt (http://www.odiousdebts.org/odiousdebts/publications/OdiousDebtsPapefromIMFConference.pdf) and declare those debts incurred by a despotic regime to not have been in the interest of its people, and therefore not suitable to transfer to the succeeding government?
This is a somewhat more complex issue than Bono’s crusade for “debt forgiveness.” This is a wholesale policy shift to reassess the nature of “full faith and credit” of a nation’s government or leadership. The concept really has not been formally implemented anywhere, though some would argue that the practical effect of late 19th century policy toward Cuba would be a fair example (as the U.S. refused to recognize the debt incurred under Spanish rule to be binding on the newly liberated Cuba). I’d point out that in that particular case, it became a matter of debt reassignemnt, rather than simple abrogation (Spain ended up paying the debt, rather than Cuba). Big difference, if you’re the creditor.
A few things to consider, as this might be an issue some will raise with Iraq:
-Iraq currently faces a monstrous load of debt, including potential reparations to Kuwait – it may take generations for these debts to be paid off rightfully, even with IMF and/or World Bank assistance
-Among the most significant creditors to Iraq, even throughout the current/outgoing regime, are (surprise, surprise) France and Russia
-There’s more to consider than just this instance… if the “legitimacy” of a particular regime is going to be a subject of debate in terms of future repayments of debt, we have to imagine that international borrowing will be considered a riskier proposition – meaning that nations (particularly developing nations, the ones most in need of financial resources) will have a harder time getting financing for their important projects
-There might be an upside to that last argument, though – if it’s harder for tyrannical rulers and human rights abusers to gain capital, that could weaken their grip on power wherever they hold it
I think it’s an interesting issue… and thought it might be worth some discussion here.
There was an interesting (although brief) piece on this yesterday on the public radio show Marketplace, which you can hear from the links below:
Marketplace article audio is here (http://www.marketplace.org/play/audio.php?media=/2003/04/08_mpp&start=00:00:16:11.0&end=00:00:19:23.2)
Marketplace commentary is here (http://www.marketplace.org/play/audio.php?media=/2003/04/08_mpp&start=00:00:19:23.2&end=00:00:21:08.8)
And here is another article link (http://www.imf.org/external/pubs/ft/fandd/2002/06/kremer.htm), again from the two most widely-published advocates for reviving the decades-old concept of “odious debt.”
As the rebuilding of the Iraqi nation looms, there is a good deal more to the story than just building bridges, roads, and schools (the sort of thing we tend to think about as “rebuilding”). Indeed, Iraq is a financial basketcase, having borrowed its way through much of the last decade, and now faces a potentially crushing weight of debt.
This raises, in my mind and many others, a very challenging public policy issue. Do the people who loaned Saddam’s Iraq deserve to be repaid? Or should we revisit an old pseudo-doctrine of Odious Debt (http://www.odiousdebts.org/odiousdebts/publications/OdiousDebtsPapefromIMFConference.pdf) and declare those debts incurred by a despotic regime to not have been in the interest of its people, and therefore not suitable to transfer to the succeeding government?
This is a somewhat more complex issue than Bono’s crusade for “debt forgiveness.” This is a wholesale policy shift to reassess the nature of “full faith and credit” of a nation’s government or leadership. The concept really has not been formally implemented anywhere, though some would argue that the practical effect of late 19th century policy toward Cuba would be a fair example (as the U.S. refused to recognize the debt incurred under Spanish rule to be binding on the newly liberated Cuba). I’d point out that in that particular case, it became a matter of debt reassignemnt, rather than simple abrogation (Spain ended up paying the debt, rather than Cuba). Big difference, if you’re the creditor.
A few things to consider, as this might be an issue some will raise with Iraq:
-Iraq currently faces a monstrous load of debt, including potential reparations to Kuwait – it may take generations for these debts to be paid off rightfully, even with IMF and/or World Bank assistance
-Among the most significant creditors to Iraq, even throughout the current/outgoing regime, are (surprise, surprise) France and Russia
-There’s more to consider than just this instance… if the “legitimacy” of a particular regime is going to be a subject of debate in terms of future repayments of debt, we have to imagine that international borrowing will be considered a riskier proposition – meaning that nations (particularly developing nations, the ones most in need of financial resources) will have a harder time getting financing for their important projects
-There might be an upside to that last argument, though – if it’s harder for tyrannical rulers and human rights abusers to gain capital, that could weaken their grip on power wherever they hold it
I think it’s an interesting issue… and thought it might be worth some discussion here.
There was an interesting (although brief) piece on this yesterday on the public radio show Marketplace, which you can hear from the links below:
Marketplace article audio is here (http://www.marketplace.org/play/audio.php?media=/2003/04/08_mpp&start=00:00:16:11.0&end=00:00:19:23.2)
Marketplace commentary is here (http://www.marketplace.org/play/audio.php?media=/2003/04/08_mpp&start=00:00:19:23.2&end=00:00:21:08.8)
And here is another article link (http://www.imf.org/external/pubs/ft/fandd/2002/06/kremer.htm), again from the two most widely-published advocates for reviving the decades-old concept of “odious debt.”