Reports

Preventing Odious Obligations: A New Tool for Protecting Citizens from Illegitimate Regimes

11/22/10
Working Group on the Prevention of Odious Debt
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This report sets out a way to prevent an all-too-common form of theft from some of the world’s poorest people. An illegitimate, unelected regime signs a contract with a foreign agent, handing over part of the national patrimony in exchange for a short-run payment, which the regime appropriates or uses in part to finance repression. Legitimate successor regimes often need to levy taxes to fulfill debt contracts incurred in this manner for fear of legal retribution and loss of reputation with investors if they fail to repay. And in the case of natural resource contracts, citizens continue to suffer from the sweetheart contracts that deprive the government of deserved revenues.

To alleviate the burden that unjust transactions impose on successor governments and their citizens, we propose a new tool: a declaration that successor governments to a (named) illegitimate regime would not be bound by contracts that the illegitimate regime signs after the declaration. Some rogue investors might operate in defiance of the system, but this new approach would still help free successor governments from concerns about repudiating illegitimate contracts. The courts of participating countries would not enforce the contracts, and the successor governments would no longer fear losing their reputation with legitimate investors worldwide.

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