Preventing Odious Obligations

When an illegitimate regime contracts with foreign actors and, in essence, mortgages its country’s future, successor regimes and innocent citizens are expected to pay back that mortgage. This all-too-common occurrence saddles citizens with unjust contracts from which they did not benefit and burdens legitimate successor governments with repayment. A declaration of contract nontransferability would put creditors and investors on notice that any future contracts to a regime would not be considered binding on successor governments. CGD is exploring how this approach could be applied in Syria and other fragile states.

Countries that throw off a repressive dictator are too often left saddled with illegitimate and odious obligations. To maintain access to international credit markets, legitimate successor governments must honor these debts and comply with other contracts negotiated by the prior regime, even if the proceeds were stolen or used to violently repress opposition.

Syria today epitomizes this mortgaging of the future. The regime of President Bashar Assad has killed thousands of people since protests began in 2011. The Arab League, United States, and European Union have condemned the violence and imposed strong sanctions against Syria’s oil sector and central bank. But these have not stopped the regime from buying weapons from Russia, or from trying to sell to China and other countries the oil the United States and European Union refuse to buy.

A new policy tool would strengthen existing measures against the Assad regime: preemptive contract sanctions. CGD senior fellow Kimberly Elliott explains how preemptive contract sanctions could work in Syria in the video above.

The Preventing Odious Obligations working group was co-chaired by by CGD visiting fellow John Williamson, non-resident fellow Michael Kremer, and Seema Jayachandran of Stanford University, with the support at CGD of Cindy Prieto, program coordinator. Their work is being carried forward by Kimberly Ann Elliott, Owen Barder, and Jenny Ottenhoff.