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Legal Case Studies on Illegitimate Debt: New Publication by Aktion Finanzplatz Schweiz
17 November 2009
On 11th November, Swiss NGO Aktion Finanzplatz Schweiz launched a new book with legal case studies on illegitimate debt at the 7th UNCTAD Debt Management Conference in Geneva. The book will strengthen NGO campaigns by providing them with legal know-how. Further, it offers useful legal arguments for initiatives by countries in the South who wish to assess and cancel illegitimate debts.
The book “How to Challenge Illegitimate Debt, Theory and Legal Case Studies“ provides detailed legal information on several cases of illegitimate or odious debts. The cases in the book comprise the Philippines, Argentina, Ecuador, Haïti, Paraguay, the Democratic Republic of the Congo, Republic of the Congo, Liberia and South Africa.
Legal Studies Support Debt Campaigning and Debt Policy Change
Swiss lawyer Sandrine Giroud argues that the gross violations of human rights by the former dictator of Haïti, Jean-Claude Duvalier, can be considered violations of ius cogens. For example, in 1980, the IMF gave Duvalier USD 22 million in aid. Part of it went directly to fund the Milice de Volontaires de la Sécurité Nationale (MVSN)—a militia force, also known as Tontons Macoutes, responsible for as many as 30 000 killings during the Duvalier years. Another part seemingly disappeared into Duvalier’s numerous personal bank accounts. Giroud points out the fact that both the IMF and the WB enjoy general immunities from adjudication in national courts. She thinks that any argument in support of cancelling part or all of the debts contracted must therefore be found in international law. She concludes that the best legal defence would be based on the violation of ius cogens, i.e. peremptory norms of international law.
In the case of the Swedish coast guard ships sold to Liberia in 1979, according to the South African lawyer Charles Abrahams it is from a legal point of view highly questionable whether interest payments of more than USD 22 million that the Swedish export credit agency has charged over the last 30 years is legally legitimate. At the time of concluding the loan agreement, interest on the loans was governed by the Swedish Interest Act of 1975. Parties are free to agree on another rate as long as it is not unfair. Since fairness is a consideration that is taken into account in Swedish law in matters pertaining to interest, Abrahams thinks that there may be an arguable case that interest three times in excess of the capital would be regarded as unfair and therefore the contract may be regarded as illegitimate. Moreover, as the sale of the ships took place at a time when Liberia was experiencing one of its most severe political and economical challenges, there is strong evidence that the Swedish export credit agency didn’t act with the necessary due dilligence when providing the guarantees for the loan agreement.
Violations of Binding Legal Instruments – a Most Powerful Political Argument
Most of the cases analyzed are not only illegitimate and odious but also illegal, because they breach contracts and regulations and violate international treaties, as well as peremptory norms and general principles of law. In addition to the case studies, the book also comprises an extensive theoretical part further developing the concept of illegitimate debt by virtue of exploring international and private law, illegitimate debt and human rights as well as arbitration and examples of NGO campaigns.
Progress Towards an Operational Concept of Odious Debt
In the chapter on the concept of illegitimate debt, Charles Abrahams shows how the concept has evolved and expanded and today encompasses moral, political and legal considerations. Sabine Michalowski explains ius cogens as a promising legal avenue in international law. She also looks at legal avenues in private law such as agency law or clean hands. Cephas Lumina, UN Special Rapporteur on Debt, explains to what extent (illegitimate) debts are responsible for the violation of human rights.
The book also clearly shows that there is a need for further research with respect to systemic issues and national sovereignty. Systemic issues refers to the whole system of indebtedness as part of the global financial architecture. It refers to the regulations that govern the relationships between creditors and debitors that must become more symmetrical regarding responsibility and risk sharing. In relation to national sovereignty, Ramiro Chimuris argues in the book that no country should be bound to accept foreign courts and arbitration as this would override constitutional obligations of countries. As national constitutions enshrine fundamental and human rights that derive from international law, overriding national constitutions can equal a violation of fundamental and human rights.
Further, the book contains examples showing that, if the state is not willing to take action in order to assess and repudiate allegedly illegitimate debts, some domestic laws give the population (as a third party) the possibility to file claims if they suffer harm from loans that the state has incurred. It would be interesting to know if other countries offer similar possibilities.
The editors Max Mader and André Rothenbühler suggest that it is more fruitful to focus efforts on existing legal avenues rather than spend too much time defending the concept of illegitimate/odious debts against its opponents such as for example the World Bank. Rather than promoting it as a legal concept in itself, it may much more easily be legitimized as a political concept that is confirmed by existing legal concepts and by their codifications in binding legal instruments. As such, while the concept of odious debt is no legal concept today, it may become a legal concept in the course of the further development of law. This, however, is a matter of centuries rather than decades, and thus concentrating on existing legal instruments and case law is advisable both for campaigning and the politics of governments in the Global South. Therefore, the editors are convinced that in order to move this issue forwards, more state practice and more case law are indispensable. They hope that the book will facilitate current and future initiatives of NGOs and governments in this direction.
The book “How to Challenge Illegitimate Debt, Theory and Legal Case Studies“ can be downloaded for free at www.aktionfinanzplatz.ch
Hard copies can be ordered for 20 Swiss francs (plus shipping costs). Please send an email indicating your postal address to afp@aktionfinanzplatz.ch.