10 November 2003
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There has been recent international discussion over the fate of Iraq's shrouded international debt. The Jubilee Iraq network, among others, has called for the cancellation of loans used to bolster Saddam's and his cronies' reign of terror and for the establishment of an international debt tribunal to determine which loans were hostile to the interests of the Iraqi people. The basis of the argument is not just moral and political: it is grounded on a century-old international legal doctrine that has been revived recently to deal with increased accountability for creditor complicity in shady lending practices.
The doctrine of odious debts is a legal principle advocated by some states and scholars that would render unenforceable public debts of previous regimes when such debts, to the creditor's knowledge, did not benefit the people of that territory. The doctrine has three elements: absence of benefit, absence of consent and creditor awareness of both.
The US government first applied the doctrine of odious debts after the acquisition of Cuba in the 1898 Spanish-American War. The government entered into negotiations at the Paris Conference of that same year to determine what portion of Cuba's prior debts the new sovereign would honour. The US refused to honour Spain's prior pledges of the island's revenue as security for a loan obtained for the exclusive use of Spain because the loans were neither for the benefit of the island, nor contracted with its consent.
Writers such as public international law scholar Alexander Sack elaborated on the doctrine of odious debts. Other writers and legal scholars such as Ernst Feilchenfeld, DP O'Connell and James Wood have described the doctrine, while legal scholars such as PK Menon and Mohammed Bedjaoui have advocated the doctrine quite fervently.
In the 1922 Tinoco Arbitration (Costa Rica v Great Britain), Chief Justice Taft of the US Supreme Court was the sole arbitrator. The dispute concerned whether Costa Rica was obliged to repay loans to the Royal Bank of Canada when they were contracted for personal use by the Tinoco regime in its dying days. Taft wrote: "The case of the Royal Bank depends not on the mere form of the transaction [ie that the government had representative authority], but upon the good faith of the bank in payment of money for the real use of the Costa Rican government under the Tinoco regime. It must make out its case of actual furnishing of money to the government for legitimate use. It has not done so."
Now the interesting question is whether the doctrine should be applied to Iraq. Iraq is today crippled after 35 years of Ba'athist rule. According to the best current estimate of Iraq's debts by the Center for Strategic & International Studies, Saddam has left Iraq with more than $383bn (£226.96bn) of debt: $127bn (£75.26bn) in loans, $199bn (£117.93bn) in war reparations and $57bn (£33.78bn) in contractual obligations. These amounts would leave each Iraqi liable to pay $15,000 (£8,900) for Saddam's follies. Like Tinoco, Saddam's debts did not benefit the Iraqi people, they were not made with their consent and, at a minimum, Saddam's creditors who sold him Exocets knew that they were propping up a vile dictator.
Worldwide support can be seen by recent measures undertaken in the US, including the introduction of the Iraqi Freedom From Debt Act in US Congress on 17 June. Section 3 of the bill is entitled 'Relief of the Odious Debt of Iraq'. It calls upon the US administration to use its influence at the World Bank and the International Monetary Fund to cancel Iraqi debt to these institutions, as well as use the US's clout at the Paris Club to ensure that creditor nations "cancel or radically reduce all debt owed by Iraq". Support for the removal of Saddam's odious debts has come from all sides, including Paul Wolfowitz, Richard Perle, Archbishop Emeritus Desmond Tutu and Professor Noam Chomsky.
The doctrine is holding water where it counts most, and we welcome your support at Jubilee Iraq (www.jubileeiraq.org).
Hussein Damirji is an attorney based between Baghdad and London. He was assisted by Jeff King, a research fellow at the Centre for International Sustainable Development Law, in writing this Opinion