The Illegitimacy of Debt and Illegitimate Debt Lidy Nacpil Jan 15, 2009.

The Illegitimacy of The Illegitimacy of Debt and Illegitimate Debt and Illegitimate

DebtDebtLidy Nacpil Jan 15, 2009Lidy Nacpil Jan 15, 2009

Beyond the Discourse of Debt Beyond the Discourse of Debt Service Impacts & Debt Service Impacts & Debt

"Sustainability“"Sustainability“ For a long time – discourse For a long time – discourse

on debt was dominated byon debt was dominated by

The issue of impacts of debt The issue of impacts of debt servicing servicing (and debt conditionalities)(and debt conditionalities)

The question of debt The question of debt "sustainability""sustainability"

Beyond the Discourse of Debt Service Beyond the Discourse of Debt Service Impacts & Debt "Sustainability"Impacts & Debt "Sustainability"

The impact of debt service is The impact of debt service is definitely a very critical and definitely a very critical and most obvious aspect of the most obvious aspect of the problem:problem:

Impact on public spending for basic Impact on public spending for basic services and other needsservices and other needs

Impact on the the ability of Impact on the the ability of countries to developcountries to develop

Beyond the Discourse of Debt Service Beyond the Discourse of Debt Service Impacts and Debt "Sustainability"Impacts and Debt "Sustainability"

Debt "Sustainability" -- is the Debt "Sustainability" -- is the framework which the lenders use framework which the lenders use to determine the extent of the to determine the extent of the debt problem, which countries are debt problem, which countries are to be given debt relief and debt to be given debt relief and debt cancellationcancellation

This simply means the ability of countries This simply means the ability of countries to absorb and pay debts – (able to pay to absorb and pay debts – (able to pay continuously; debt crisis to lenders is continuously; debt crisis to lenders is when regular, on time and sufficient when regular, on time and sufficient payments are threatened or disrupted)payments are threatened or disrupted)


Some debt campaigns have Some debt campaigns have challenged the lenders' definitions of challenged the lenders' definitions of debt sustainability using the human debt sustainability using the human development and human rights development and human rights approach, approach,

i.e. -- "what level of debt service can a i.e. -- "what level of debt service can a country afford without threatening their country afford without threatening their capacity to provide for human capacity to provide for human development, or without their capacity development, or without their capacity to ensure basic rights to education, to ensure basic rights to education, health, water, decent housing etc.health, water, decent housing etc.

but...but...

Beyond the Discourse of Debt Service Impacts Beyond the Discourse of Debt Service Impacts and Debt "Sustainability"and Debt "Sustainability"

The alternative framework offered The alternative framework offered still does not go beyond the still does not go beyond the question of affordability -- they question of affordability -- they simply assert other standards of simply assert other standards of defining affordabilitydefining affordability

Beyond the Discourse of Debt Service Impacts and Beyond the Discourse of Debt Service Impacts and Debt "Sustainability"Debt "Sustainability"

The impact of debt servicing or debt The impact of debt servicing or debt payments, while a critical dimension of payments, while a critical dimension of the debt problem, is not the only central the debt problem, is not the only central issueissue

Debt sustainability defined in a Debt sustainability defined in a progressive way, in a world where progressive way, in a world where lending/borrowing and consequently debt lending/borrowing and consequently debt servicing will continue, may be a valid servicing will continue, may be a valid question, but this should not be the sole question, but this should not be the sole nor main basis for debt cancellation. nor main basis for debt cancellation.


Debt campaigns have been working Debt campaigns have been working to change the terms of the debate to to change the terms of the debate to a broader framework that raises the a broader framework that raises the question of illegitimacy of the debt question of illegitimacy of the debt and/or illegitimate debtand/or illegitimate debt

Takes into account the issue of impacts, Takes into account the issue of impacts, but broadens the discourse to raise but broadens the discourse to raise other critical questions about debtother critical questions about debt


Looks at the debt problem in broader Looks at the debt problem in broader historical, political and economic contexthistorical, political and economic context

Includes the analysis and critique of the Includes the analysis and critique of the system that has spawned the debt problemsystem that has spawned the debt problem

Does not reduce the rationale for debt Does not reduce the rationale for debt cancellation to an issue of affordability cancellation to an issue of affordability even if this is set on higher, human even if this is set on higher, human development and human rights standardsdevelopment and human rights standards

Illegitimacy of Debt and Illegitimacy of Debt and Illegitimate DebtIllegitimate Debt

Illegitimacy of DebtIllegitimacy of Debt – systemic, – systemic, historical, structural, political economy historical, structural, political economy analysis and perspective – refers to the analysis and perspective – refers to the debt as a wholedebt as a whole

Illegitimate DebtIllegitimate Debt – refers to specific – refers to specific debts, definition of illegitimacy may range debts, definition of illegitimacy may range from comprehensive, historical structural, from comprehensive, historical structural, to more narrow or specific bases and to more narrow or specific bases and criteriacriteria

Illegitimate DebtIllegitimate Debt

The term and general concept of illegitimate The term and general concept of illegitimate debt is not of recent origin. In the 1980’s, debt is not of recent origin. In the 1980’s, debt campaigns raised the issue of debt campaigns raised the issue of illegitimate debts, using various descriptions illegitimate debts, using various descriptions – onerous, fraudulent, immoral, odious etc.– onerous, fraudulent, immoral, odious etc.

In the early 1900s, the concept of odious In the early 1900s, the concept of odious

debt (one type of illegitimate debt) was debt (one type of illegitimate debt) was developed by Alexander Sachs. It has since developed by Alexander Sachs. It has since been the subject of academic and legal been the subject of academic and legal studies & papers.studies & papers.

Illegitimate Debt is now a major focus of Illegitimate Debt is now a major focus of many debt campaigns and advocacy groups many debt campaigns and advocacy groups throughout the world. throughout the world.

What is Illegitimate DebtWhat is Illegitimate Debt

There is broad consensus in the global There is broad consensus in the global debt that the term refers to debt that the term refers to unacceptable, irregular, inappropriate, unacceptable, irregular, inappropriate, irresponsible, dubious, fraudulent irresponsible, dubious, fraudulent features of debts, features that go features of debts, features that go against widely accepted legal, political, against widely accepted legal, political, financial, economic, environmental and financial, economic, environmental and most especially ethical standards and most especially ethical standards and principles.principles.

But there is no firm consensus yet as to But there is no firm consensus yet as to its precise definition, coverage, its precise definition, coverage, application and translation into policy.application and translation into policy.


There are ongoing studies and There are ongoing studies and discussions that include looking into discussions that include looking into international and domestic law, human international and domestic law, human rights, economics, governance and rights, economics, governance and development policy to develop more development policy to develop more rigorous definitions, analytical tools and rigorous definitions, analytical tools and policy instruments on the concept of policy instruments on the concept of illegitimate debt.illegitimate debt.

Dictionary definition of Dictionary definition of illegitimacyillegitimacy

il·le·git·i·mate·il·le·git·i·mate· adjective adjective 1.1. Not carried Not carried out, made or constituted in accordance with out, made or constituted in accordance with the Law, or with Rules governing a specific the Law, or with Rules governing a specific activity, or with Social Norms and Customs activity, or with Social Norms and Customs 2.2. Not in accordance with accepted Not in accordance with accepted standards standards 3.3. Departing from the regular; Departing from the regular; Irregular Irregular 4.4. Inappropriate Inappropriate 5.5. Not legal or Not legal or fair fair 6.6. Outlawed, Unlawful, Illicit Outlawed, Unlawful, Illicit 7.7. Unauthorized, Unwarranted Unauthorized, Unwarranted 8.8. Not genuine; Not genuine; Spurious Spurious 9.9. Improper Improper 10. 10. Unacceptable ***Unacceptable ***

***Culled from definitions of several dictionaries, leaving out ***Culled from definitions of several dictionaries, leaving out references to illegitimate offspringreferences to illegitimate offspring

Should not be approached as an already Should not be approached as an already established academic or legal conceptestablished academic or legal concept

The concept is based on experiences of The concept is based on experiences of the peoples of the South-- a systematic the peoples of the South-- a systematic articulation, analysis and address of articulation, analysis and address of these experiences.these experiences.

The framework of debt sustainability The framework of debt sustainability does not cover many of these does not cover many of these dimensions, no matter how progressively dimensions, no matter how progressively defined.defined.


Illegitimacy is more than just legality. Illegitimacy is more than just legality. – Support and resonance to be found in Support and resonance to be found in

present laws (national and international), present laws (national and international), butbut

– Laws do not YET adequately cover and Laws do not YET adequately cover and address all the issues being raised in the address all the issues being raised in the work on illegitimate debt.work on illegitimate debt.

Definitions not rooted solely in law, but,Definitions not rooted solely in law, but,

Fully appreciate of the value of using Fully appreciate of the value of using legal instruments to explain the legal instruments to explain the concept, gain recognition of the concept, gain recognition of the problem, and compel action. problem, and compel action.

The notion of legality and legitimacy The notion of legality and legitimacy are linked,are linked,

However, prevailing laws cannot However, prevailing laws cannot adequately cover the notion of adequately cover the notion of illegitimacy; Nor can we presume illegitimacy; Nor can we presume that something that is legal is that something that is legal is necessarily legitimate necessarily legitimate

Hence the need to review, change, Hence the need to review, change, develop and expand lawsdevelop and expand laws

There are a range of perspectives:There are a range of perspectives:

From the more radical:From the more radical:– looks at debts not only in their looks at debts not only in their

specific and immediate specific and immediate circumstances, nature and circumstances, nature and consequences – but from a consequences – but from a broader, historical and systemic broader, historical and systemic analysis;analysis;

To a narrower and arguably more To a narrower and arguably more easily empirically verifiable definition easily empirically verifiable definition of illegitimate debtof illegitimate debt

Basic Definition – from a Southern Basic Definition – from a Southern perspectiveperspective

Illegitimate Debts are those which Illegitimate Debts are those which cannot be rightfully claimed as debts of cannot be rightfully claimed as debts of the peoples of the South. the peoples of the South.

Involve the gross violation of of basic Involve the gross violation of of basic assumptions of debt contracts, as well as assumptions of debt contracts, as well as widely accepted ethical, social, political, widely accepted ethical, social, political, economic, environmental values, standards economic, environmental values, standards and principles.and principles.

Cause harm to the well being of the people Cause harm to the well being of the people and communities in whose name the debts and communities in whose name the debts were incurred and who are the ones paying were incurred and who are the ones paying for these debts.for these debts.

Areas where anomalies, irregularities, Areas where anomalies, irregularities, fraud, violations, injustices occurfraud, violations, injustices occur

circumstances surrounding the contraction circumstances surrounding the contraction of the debt (can be immediate, can also of the debt (can be immediate, can also include broader, historical context); include broader, historical context);

the nature of the contracting partiesthe nature of the contracting parties

the relationship between the contracting the relationship between the contracting parties (including the imbalance of power parties (including the imbalance of power which shapes the financial relations)which shapes the financial relations)

the terms of the contractsthe terms of the contracts

• the processes of lending and borrowing; the processes of lending and borrowing; of how the debt was incurredof how the debt was incurred

how the funds were used, misused, how the funds were used, misused, abusedabused

how debts and access to credit are used how debts and access to credit are used as leverage to impose conditionalitiesas leverage to impose conditionalities

the implications and impact of attendant the implications and impact of attendant conditionalitiesconditionalities

the impacts of servicing these debtsthe impacts of servicing these debts

the impact and implications of the impact and implications of “indebtedness” and the “dependence” “indebtedness” and the “dependence” on borrowingon borrowing

Basic assumptions of debt contractsBasic assumptions of debt contracts

1.1. The contracting parties are clearly The contracting parties are clearly authorized and clearly have the mandate authorized and clearly have the mandate to act in behalf of the constituency in to act in behalf of the constituency in whose name they are contracting the whose name they are contracting the agreement.agreement.

2.2. The contracting parties have the The contracting parties have the common obligation of being transparent common obligation of being transparent and accountable to the constituencies in and accountable to the constituencies in whose name they are contracting the whose name they are contracting the agreement, and that the agreements agreement, and that the agreements must respect this obligation.must respect this obligation.

3.3. The agreement being contracted is for The agreement being contracted is for the benefit of the constituencies in the benefit of the constituencies in whose names they are contracting the whose names they are contracting the agreement. agreement.

4.4. The agreement, and the attendant The agreement, and the attendant terms and obligations, should be fair terms and obligations, should be fair and mutually beneficial. It should not be and mutually beneficial. It should not be grossly disadvantageous, or outrightly grossly disadvantageous, or outrightly harmful to one party. harmful to one party.

““Widely accepted” ethical, social, Widely accepted” ethical, social, political, economic, environmental political, economic, environmental values & principlesvalues & principles We assume and invoke a collective or We assume and invoke a collective or

community sense of justice & fairness, a community sense of justice & fairness, a sense of what is right, what is for the common sense of what is right, what is for the common good. These common values and principles good. These common values and principles include:include:

Basic Human RightsBasic Human Rights

Sovereignty and Self-Determination of Sovereignty and Self-Determination of Peoples and Nation-States Peoples and Nation-States

The Obligation of States and public The Obligation of States and public officials to act in the interest of their officials to act in the interest of their constituencyconstituency

Democratic Process, Democratic Democratic Process, Democratic Governance, which includes Governance, which includes transparency and accountabilitytransparency and accountability

Sustainable use of ecological and Sustainable use of ecological and environmental resourcesenvironmental resources

Relations based on Parity, Mutual Relations based on Parity, Mutual Respect, Mutual Benefit, Fairness, Respect, Mutual Benefit, Fairness, Transparency, Mutual Accountability Transparency, Mutual Accountability and Responsibility; Non-interference and Responsibility; Non-interference and non-aggression and non-aggression

Many of these are not just assumed or Many of these are not just assumed or asserted -– There are established asserted -– There are established laws, customs and codes, treaties and laws, customs and codes, treaties and in fact United Nations covenants and in fact United Nations covenants and agreements as evidences of wide agreements as evidences of wide acceptance, and as declaration of acceptance, and as declaration of commitment and obligation to uphold commitment and obligation to uphold these values and principles.these values and principles.

TypologyTypology

• Odious DebtOdious Debt• Onerous debtsOnerous debts• Fraudulent LoansFraudulent Loans• Criminal DebtsCriminal Debts• Oppression DebtsOppression Debts• War DebtsWar Debts• Corruption DebtsCorruption Debts• Elitist DebtsElitist Debts• Rescue DebtsRescue Debts• etcetc

Illegitimate Debt and Odious DebtIllegitimate Debt and Odious Debt

Illegitimate Debt – broader termIllegitimate Debt – broader term

Odious Debt – a type of illegitimate debtOdious Debt – a type of illegitimate debt

• involves the question of whether a state involves the question of whether a state which contracted the debt is illegitimate, which contracted the debt is illegitimate, which therefore makes the debts it which therefore makes the debts it contracted illegitimate as wellcontracted illegitimate as well

Illegitimate Debt and Odious DebtIllegitimate Debt and Odious Debt

• In the beginning - included the question of In the beginning - included the question of state succession (whether a successor state succession (whether a successor state recognizes the previous state and its state recognizes the previous state and its debts as legitimate)debts as legitimate)

• More recent assertions – must include 3 More recent assertions – must include 3 elements – consent of the people, benefit elements – consent of the people, benefit to the people, knowledge of lenderto the people, knowledge of lender

Odious Debt – there is no firmly Odious Debt – there is no firmly established consensus either on its established consensus either on its precise definition as a concept. For precise definition as a concept. For instance whether to limit it only to instance whether to limit it only to how A. Sacks defined it, or to how A. Sacks defined it, or to approach the definition in terms of approach the definition in terms of how the concept has evolved how the concept has evolved through the years (as expressed in through the years (as expressed in all relevant writings and practice)all relevant writings and practice)

The Question of Illegitimate DebtThe Question of Illegitimate Debt

Lays further, firmer grounds for Lays further, firmer grounds for demanding debt cancellation and demanding debt cancellation and repudiation as a matter of justicerepudiation as a matter of justice

Points to what has to be transformed Points to what has to be transformed and the alternatives to be established and the alternatives to be established in the policies, practices, processes, in the policies, practices, processes, power relations and structures of the power relations and structures of the economic system (national and economic system (national and global), as well as to broader political global), as well as to broader political & economic changes& economic changes

LENDER RESPONSIBILITYLENDER RESPONSIBILITY There is this misconception that illegitimate There is this misconception that illegitimate

debt largely refers to the nature, misconduct debt largely refers to the nature, misconduct & irresponsibility of the borrowers. & irresponsibility of the borrowers.

South movements would be the first to South movements would be the first to refuse to exempt our governments and govt refuse to exempt our governments and govt officials from blame as we know first hand officials from blame as we know first hand their crimes and the flaws of our political their crimes and the flaws of our political systems and economic structures. systems and economic structures.

But illegitimate debt is also about, and in But illegitimate debt is also about, and in many cases many cases primarilyprimarily about the about the responsibility and culpability of lenders.responsibility and culpability of lenders.

LENDER RESPONSIBILITYLENDER RESPONSIBILITY

Even in the case of illegitimate Southern Even in the case of illegitimate Southern governments -- history shows that many governments -- history shows that many dictatorial regimes in the South were dictatorial regimes in the South were cultivated if not directly installed by cultivated if not directly installed by northern governments in collusion with northern governments in collusion with multinational corporations, that multinational corporations, that corruption was not only overlooked by corruption was not only overlooked by donors and lenders - it was used as an donors and lenders - it was used as an instrument to ensure loyalty and instrument to ensure loyalty and malleability of their allies in the South.malleability of their allies in the South.

It is crucial to note that international It is crucial to note that international financial transactions are conducted in financial transactions are conducted in the context of grossly unequal power the context of grossly unequal power relations. It is the powerful parties that relations. It is the powerful parties that drive processes and shape agreements drive processes and shape agreements and therefore carry more of the and therefore carry more of the culpability for illegitimate debt and culpability for illegitimate debt and responsibility for the process, nature and responsibility for the process, nature and outcome of financial transactions, outcome of financial transactions, including feeding corruption and including feeding corruption and propping up dictatorships. propping up dictatorships.

In international campaigning – “Lender In international campaigning – “Lender Responsibility is a useful term/concept that Responsibility is a useful term/concept that must be asserted.must be asserted.

The unprecedented and very much The unprecedented and very much welcome case of the Norwegian Debt welcome case of the Norwegian Debt Cancellation -- the Norwegian govt Cancellation -- the Norwegian govt acknowledged that the irresponsibility and acknowledged that the irresponsibility and the inappropriate nature of the transaction the inappropriate nature of the transaction was their responsibilitywas their responsibility

Again this does not mean we absolve South Again this does not mean we absolve South governments, officials and the South elites governments, officials and the South elites from their responsibility and culpabilityfrom their responsibility and culpability

Further underscoring the Illegitimate Further underscoring the Illegitimate Nature of the DebtNature of the Debt

The debts have actually been paid The debts have actually been paid many times over by the people of the many times over by the people of the South, in financial terms, as well as in South, in financial terms, as well as in economic, social and environmental economic, social and environmental terms.terms.

It is the North that owes the South -- It is the North that owes the South -- historical, social and ecological debts.historical, social and ecological debts.

Historical, Social & Ecological Historical, Social & Ecological DebtDebt

Historical, social debt-- in the history Historical, social debt-- in the history of colonization and under the current of colonization and under the current globalize systemglobalize system– Net outflow of resources from the South to Net outflow of resources from the South to

the North. Our resources and labor the North. Our resources and labor generate the wealth -- which flows from generate the wealth -- which flows from our countries to the rich countries.our countries to the rich countries.

– Exploitation of slave labor, colonial labor, Exploitation of slave labor, colonial labor, now migrant labornow migrant labor

– Exploitation, annihilation of indigenous Exploitation, annihilation of indigenous knowledge, culture etcknowledge, culture etc

Historical, Social & Ecological DebtHistorical, Social & Ecological Debt

Ecological Debt –Ecological Debt –

exploitation and plunder of our exploitation and plunder of our environmental resources and environmental resources and biodiversitybiodiversity

environmental damage – in the South environmental damage – in the South and of the global commonsand of the global commons

the climate crisisthe climate crisis

The perspective on the illegitimacy of The perspective on the illegitimacy of debt is based on a critical, holistic debt is based on a critical, holistic and rigorous understanding of and rigorous understanding of historical and prevailing realities. It historical and prevailing realities. It is also a perspective that is is also a perspective that is EMPOWERING for the peoples of the EMPOWERING for the peoples of the South.South.

From this perspective, the eradication From this perspective, the eradication of the debt problem is a matter of of the debt problem is a matter of justice -- not forgiveness nor charity.justice -- not forgiveness nor charity.

GoalsGoals

Debt cancellation – by lendersDebt cancellation – by lenders Debt Repudiation – by Southern Debt Repudiation – by Southern

governmentsgovernments Changes in the Financial and Changes in the Financial and

Economic System (national and Economic System (national and global) global)

Political Changes – as a requirement Political Changes – as a requirement and an outcomeand an outcome

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The Illegitimacy of Debt and Illegitimate Debt Lidy Nacpil Jan 15, 2009.

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