AFRICA’S ODIOUS DEBT.

This piece aims at addressing Africa’s odious debt in the context of International financial system and lack of effective regional and international initiatives for fighting corruption and finally explains the extent to which the principal-agent principle may apply to repudiate its repayment.

Odious debt in simple language can be expressed as money borrowed by the state and misused by the borrowing government.  This can also be termed as illegitimate debt that is incurred by a national despotic regime and its payment should not be enforceable.^[1]It can also be described as debts that were contracted and spent against the interests of the population of a State, without its consent, and with full awareness of the creditor.^[2]

Of the money borrowed by African governments in recent decades, more than half departed in the same year, with a significant portion of it winding up in private accounts at the very banks that provided the loans in the first place. Meanwhile, debt-service payments continue to drain scarce resources from Africa, cutting into funds available for public health and other needs. The only reasonable solution seems to be, African governments repudiating these “odious debts’ from which their people derived no benefit, and that the international community should assist in this effort. Consider for example the Anglo-leasing and the Eurobond scandals in Kenya. These corruption scandals almost brought Kenya to its knees after the money disappeared and taxes increased to be able to pay the debts yet up to now, there has been no justice for the same.

Several scholars have tried analysing the concept of odious debt and divided it into several categories. Some classified them into four groups namely; war debts, subjugated debts, regime debts and imposed debts. Additionally, O’Connell added hostile debts and profligate debts to the ones classified by Sack. The most common ones however seem to be hostile debts and war debts^[3].

In international law, there arises an obligation of every borrowing state to repay the debt. However, this principle has never been accepted as absolute, and has been frequently limited or qualified by a range of equitable considerations. Some of these considerations may lead to a debt being termed as odious. This concept as emanated from principles such as state responsibility to its citizens, political and social justice as well as accountability. These fundamental concepts are the normative sources of odious debt.^[4] In as much as all these principles should come in play when considering interstate debts, the limitation is however founded on This obligation has generally been articulated as based on the notion of pacta sunt servanda, the requirement that States honour their agreements with one another.^[5]

The idea of odious debt is often discussed from the political and institutional context. The notion of “repudiation” of debt is in itself inadequate to capture the complex possibilities of how and where a “doctrine” of odious debt might be invoked.^[6] First of all, in the case of state-to-state debt, the notion of odious debt might be invoked against a claim that there is an international law obligation to repay the debt. Such a claim might in theory be invoked in state-to-state arbitration or even in the International Court of Justice. This is mostly done in instances where, money was borrowed for a designated development purpose but was not used for the said purpose yet the repayment is to be done from the state’s accounts.

There are several instances where this has been invoked.  One example is Soviet repudiation of Tsarist debts. After the Revolution of 1917, the Provisional Soviet Government initially agreed to repay the outstanding debt of the Tsarist Government. However, by 1918, the Soviet Government had repudiated the debt. Sack, who himself was a former minister in the Tsarist regime, notes a particular Soviet doctrine that regards acts of previous Governments as incurring personal obligations only, and not ones that bind the State. Nevertheless even for Sack, it could be argued that the repudiated debts were “odious” and therefore were unenforceable against the successor regime, given the evidence that Tsarist Russia did not rule in the interests of its population^[7].

Another key example is the Treaty of Versailles of 1919 and Polish debts. Article 254 of the Treaty of Versailles exempted Poland from the apportionments of those debts which “in the opinion of the Reparation Commission are attributable to the measures taken by the German and Prussian Governments for the German colon

ization of Poland.” Article 254 then set out the manner in which German public debts contracted prior to 1 August 1 1914 were assumed by successor States. O’Connell and others agreed that the Treaty of Versailles effectively applied the odious debt test used by the American Commissioners in the Cuban debt controversy^[8]

In light of this, it is important to look at the African context of odious debt and how corruption is a major trigger for this claim. It is no doubt that corruption has destroyed the economies of many African states, but the big question is, how is this related to the concept of odious debt? In order to understand this position, we shall consider several case studies. The bottom line is that, external borrowing by African countries imposes a double burden on these nations. Public funds that could be used to provide social services, such as health care and education, are diverted to servicing debts some of which fuelled capital flight^[9]; (Capital flight is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital controls) and the heavy debt burden makes these countries ineligible for external financing to support national development initiatives. This has been the main cause of Africa’s stagnating developments in the global scale.

From 1970 to 2008, the combined foreign debt of African countries rose from less than $50 billion to more than $200 billion in constant dollars. During the same time, capital flight from the 33 sub-Saharan African countries for which decent data exists totalled $735 billion. In this arresting analysis, two economists show that those numbers are closely related. A large proportion of the publicly contracted debt was siphoned off by individuals, often in key policymaking roles, and then expatriated for private gain. Ndikumana and Boyce estimate that as a result, Africa, the world’s poorest region, is actually a net creditor to the rest of the world.^[10] While people enrich themselves with loans, the repayment is made by hard earned tax payers’ money and thus the citizens end up suffering for reasons that are not their fault. Similar scenarios were witnessed with the South African apartheid debts which was filed for repatriation^[11] among other scenarios such as the case of Omar Bongo of Gabon, General Sani Abacha of Nigeria and Mobutu Sese Seko of Zaire among other African leaders who enriched themselves with foreign loans and left their countries grappling to repay the loans at the expense of developing their countries. ^[12]

In conclusion, it is economically unjust for a nation to struggle with repayment of foreign loans which only benefited a handful at the expense of fulfilling international obligations. There is need to restructure these obligations, it is not in contention that debts should be paid, but they should be recovered from the proceeds of the development projects they advanced. In the absence of such, those who should be responsible for the repayment are those who received it based on the principal-agent doctrine where the principle is held liable for the debts of the agents in his case being the state, if there was no consent from the citizens and if there is no proof of any development using the money.^[13]

Have you consented to any public debt? Do you participate in the budget making process?

Do leave a comment below?

ARTICLE BY:

---

[1] Prof. Robert Howse. The concept of Odious Debt in Public International Law. UNCTAD/OSG/DP/2007/4

[2] Alexander Nahun Sack. The Effects of State Transformations on their Public Debts and Other Financial Obligations.1927

[3] ibid

[4] ibid

[5] Leah Oluoch Odhiambo. APPLICATION OF THE LEGAL DOCTRINE OF PACTA SUNT SERVANDA ON

KENYA’S INTERNATIONAL RELATIONS.  2016.

[6] Meron T (1957). The repudiation of ultra vires state contracts and the international responsibility of

States. 6 Int’l L. and Comp. L., Q.: 273.

[7] Sack AN (1932). The judicial nature of the public debt of States. 10 N.Y.U. Law Quarterly: 341.

[8] O’Connell DP (1967). State Succession in Municipal Law and International Law, Vol. I.

[9] https://www.investopedia.com/terms/c/capitalflight.asp

[10] ibid

[11] Hanlon J (2002). Defining illegitimate debt and linking the cancellation to economic justice. June,

Open University.

[12] ibid

[13] Altvater E et al., Eds (1991). The Poverty of Nations: A Guide to the Debt Crisis—From Argentina to

Zaire. New Jersey, Zed Books.