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The Odious Debt Doctrine After Iraq

Literature › Works

Jai Damle (2007). The Odious Debt Doctrine After Iraq. Law and Contemporary Problems, Vol. 70 (Autumn 2007). Duke University School of Law.
Type journal article
Scope Comparative and methods
Method policy analysis
Period studied 2003–2007
Regions Iraq, Nigeria, South Africa (passing reference), Ecuador, Norway
Themes macro fiscal finance debt, comparative theory, transition post apartheid, sanctions divestment
Citation key damle2007

Argument

The note asks whether the odious debt doctrine became a working tool for debt repudiation after the 2003 Iraq regime change. Damle argues it did not: Iraq obtained an 80 percent write-off through the Paris Club and political channels, backed by the US, and relied on need and security arguments rather than odiousness. The doctrine may have worked as a rhetorical baseline that gave Iraq leverage, but its effect cannot be separated from the security arguments. Unilateral repudiation, an international bankruptcy court and ex post mechanisms are all unlikely, because creditors want to keep control and 'odious' is hard to define. Ex ante loan sanctions and anti-corruption conditionality are the most plausible routes. South Africa appears only as a contrast case: apartheid-era debt is still being repaid despite strong grounds for odiousness.

Evidence and method

Secondary legal and policy literature (Adams, Stiglitz, Gelpern, Jayachandran-Kremer-Shafter), Congressional Research Service reports on Iraq's debt, Paris Club documents, UN Security Council resolutions, White House press releases, financial press (Financial Times, Euromoney, Economist), and IMF country reports. There is no original archival or quantitative work.

Findings

  • South Africa's apartheid debt is cited as an ideal test case, yet the new government kept repaying it for fear of damaging its borrowing capacity. (p. 2)

    Nonetheless, the country continues to repay its Apartheid-era debt due to fears that not paying would hinder its ability to borrow going forward.

  • Iraq obtained a large write-off through political channels, which contrasts with South Africa's experience. (p. 2)

    Iraq was able to restructure its debt on very favorable terms—receiving an eighty percent write-off—by working through political channels with the backing of the United States.

  • The central thesis: odiousness did not supply a mechanism for debt repudiation for countries lacking strategic value. (p. 2)

    the doctrine, although it may have played some role in the Iraqi debt renegotiation process, does not currently supply a meaningful mechanism

  • Odiousness served as rhetorical gloss while security and economic arguments did the real work in the Iraq deal. (p. 10)

    served only to provide a humanitarian gloss—the heavy lifting, at least publicly, was done by focusing on concerns about the consequences of an economically stagnant Iraq

  • The Iraqi finance minister reported that US Treasury and the IMF were not persuaded by the odious debt argument. (p. 10)

    The ‘odious debt’ argument doesn’t carry much favour either with the US Treasury or with the [International Monetary Fund].

  • The Paris Club agreement cut Iraq's debt owed to the Club sharply, staged in three steps. (p. 11)

    Overall, the Paris Club agreements reduced Iraqi debt owed to the Club from $38.9 billion to $7.9 billion.

  • Commercial creditors accepted the Paris Club baseline through a debt exchange. (p. 11)

    approximately $14 billion of commercial paper was swapped for a $2.7 billion Eurobond issue.

  • The doctrine may have given Iraq a debtor-friendly default position, but its effect is hard to isolate. (p. 12)

    the odious debt doctrine provided a debtor-friendly default position, which allowed the new Iraqi regime to take a relatively aggressive stance with the Paris Club.

  • Creditors resist recognising Saddam's debt as odious because it would set a precedent and shift control over restructuring to debtors. (p. 13)

    giving debtor nations the odious debt tool, backed by precedent, would take control over the restructuring process away from creditor countries.

  • Nigeria's 2005 Paris Club deal, helped by a repudiation threat, again shows the doctrine acting only in the background. (p. 15)

    We have not seen the doctrine acting alone, and it is likely that other countries will follow Iraq and Nigeria’s lead in restructurings

  • The classic doctrine is inoperable for debtors without political or strategic value to powerful creditors. (p. 18)

    the doctrine in its classic formulation is sufficiently problematic to render it inoperable to debtors without sufficient political or strategic value