Odious debt is an established legal principle. Legally, debt is to be considered odious if the government used the money for personal purposes or to oppress the people. Moreover, in cases where borrowed money was used in ways contrary to the people’s interest, with the knowledge of the creditors, the creditors may be said to have committed a hostile act against the people. Creditors cannot legitimately expect repayment of such debts.
The United States set the first precedent of odious debt when it seized control of Cuba from Spain. Spain insisted that Cuba repay the loans made to them by Spain. The U.S. repudiated (refused to pay) that debt, arguing that the debt was imposed on Cuba by force of arms and served Spain’s interest rather than Cuba’s, and that the debt therefore ought not be repaid. This precedent was upheld by international law in Great Britain v. Costa Rica (1923) when money was put to use for illegitimate purposes with full knowledge of the lending institution; the resulting debt was annulled.
"Odious debt" is a narrow legal term that refers only to a very specific category of debt. However, some debt that is not odious may nevertheless be illegitimate.
What makes debt illegitimate? Jubilee South, our primary partners in Asia, Latin America and Africa, have long proclaimed the debt burden of their countries illegitimate based on the historical context of the debt.
Why should the people of the South endlessly pay for bad loans that never benefited the people? Jubilee South also argues that debt continues to be used as a tool of domination that ensures easy access by creditor nations and institutions to the resources of the South.
Jubilee USA Network supports the arguments Jubilee South makes about illegitimate debt, and agrees that the chains of debt have become a new form of slavery.
Beyond the powerful arguments offered by Jubilee South, we might also consider much of the Global Southís debt illegitimate for the following reasons:
- Creditors made loans irresponsibly. When the price of oil increased dramatically in the early 1970s, banks were suddenly awash with the petrodollars the oil-producing nations were depositing. In an effort to have those petrodollars earn interest, creditors pushed loans on developing countries.
- During the Cold War era, loans were often made more for ideological and political reasons than for reasons of assisting development. Dictatorial and corrupt governments often had no problem obtaining loans, as long as they were anti-Communist.
- Creditors have often continued to extend loans to countries even when they knew that corrupt government leaders were siphoning off the money. Jubilee USA Network believes it is unjust for the South to continue paying these debts as the majority of the population cannot meet even their most basic needs.