Chapter 6: Justifications for a Law Banning Odious Debts
The time is ripe for revision of the existing framework for sovereign debt. Other than the general rule of pacta sunt servanda, there are no clear rules. Informal mechanisms such as the creditor-driven Paris and London Clubs have surfaced, but do not address the issue of odious debts in any systematic way. The events in Iraq, Nigeria, Ecuador, and now the whole Eurozone have shown that the concept of odious debts is being used to influence debt negotiations more and more frequently. Given that the concept has not achieved legal status, and that there are no clear rules as to what constitutes odious debt, or when it can be used as a basis for repudiation, odious debt language is currently used in an unpredictable and inconsistent fashion in sovereign debt negotiations. This creates uncertainty in international finance. It is time for the sovereign debt framework to graduate to a more mature state. Clear rules are needed to better structure how this important area of international finance functions in practice. There are several good reasons why the odious debts concept should be incorporated into the international legal framework for sovereign debt, in a more ordered and established way. These reasons are considered below. THE MORALITY/FAIRNESS JUSTIFICATION The insufficient spending on health and education in many countries in Latin America, sub-Saharan Africa, the Caribbean, and Asia are clear examples of how harmful sovereign borrowing can be. Monies which could be used to build schools and hospitals are instead diverted to debt repayments....
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