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Odious Debts

The relevance of international law to the Bank’s financial work is epitomized by the current discussion on the so-called “odious debts”, which (according to certain writers and NGOs) a country may legitimately repudiate. While the international practice shows instances in which war, subjugation or regime debts have been found not to be transferable to a successor state or government, the fact remains that no customary international rule, general principle of law or codification treaty (treaties, customs and general principles being the three traditional sources of international law) allows the repudiation of odious debts. New governments that have recently inherited large sovereign debts chose to restructure their debts with their creditors instead of repudiating those debts unilaterally on the ground that they were allegedly “odious”. Nor is there any basis in international law for expanding the original concept of odious debts to the even more questionable notion of “illegitimate debt” (which a borrower would not have to repay because the original loan or conditions attached to that loan infringed the law or public policy, or because they were unfair, improper, or otherwise objectionable) or for mechanisms to declare ex ante that certain regimes are “odious”, with the consequence that the lenders extending financial assistance to such regimes would have no legitimate claim to repayment.

Although international law does not provide for the repudiation of debts on the ground of their being “odious”, lenders and sovereign borrowers have been taking measures to ensure that loans are used for the benefit of the borrowers’ populations, by fighting corruption, promoting good governance, respecting the laws of the borrowing country and meeting international standards, minimizing the risks of the inappropriate use of loans, helping developing countries to recover stolen assets, assisting them in buying back debt from commercial creditors, and providing debt relief to the poorest countries. These measures seem to offer a more promising response to a real problem than invoking a concept that risks disrupting international financial flows to developing countries.

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Last updated: 2009-03-12

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