At the same time, we noted that this right might have two possible qualifications: i) certain core fundamental human rights of individuals and groups; and ii) that such governance indeed be self-governance.
That column also noted that, in certain cases, bad governance might result in unconscionable national debt, with adverse for international lenders – and promised to explore this matter further in a subsequent column.
In the event, the column that followed, published on 13th December 2023, dealt with a third possible qualification of the right to bad governance, that is to say, the interests and welfare of other countries (especially their neighbours but, in some cases, also humanity as a whole).
The question as to the notion of unconscionable or illegitimate debt – which has come to be known as ‘odious debt’ under international law – remained unanswered. This column, the last in these series, deals with this deferred issue.
Although a number of early writers – including the Dutch legal scholar Hugo Grotius (1583-1645), whom some consider to be the ‘father of international law’ – reflected on the question of illegitimate sovereign debt, most commentators credit the articulation of the concept of odious debt to the Russian jurist Alexander Nahum Sack.
In a 1927 book entitled The Effects of State Transformations on their Public Debts and Other Financial Obligations Sack noted that that there were certain circumstances under which the nationals of a State might not be legally obliged to satisfy debts incurred by autocratic regimes.
According to him: ‘If a despotic power contracts a debt, not for the needs and in interest of the State, but to strengthen its despotic regime, to oppress the population that combats it, that debt is odious for the whole State.
The debt need not be recognized by the Nation: it is a debt of the regime, a personal debt of the power that contracted it and consequently falls along with the power that contracted it.’
In this regard, Sack postulated that to succeed in setting up the doctrine as a justifiable shield from international legal obligation, the government which succeeded that despotic regime had to establish, before an international tribunal, two conditions: (i) that the aims stipulated by the former regime for obtaining the debt were clearly inconsistent with needs of the population in the whole or part of the State; and (ii) that the creditors, at the time of advancing the impugned loans, were aware of these improper purposes.
Once the new regime established these two conditions, the burden then shifted to the creditors to demonstrate that the funds in question had not in fact been used for spurious purposes, that is to say, harming the whole or part of the population of the State; and that they had been used for legitimate State purposes.
This statement of the law has been severally reflected in positions historically adopted by a number of States – before and since the publication of Sack’s work – including many prominent international lenders.
For instance, the Fourth Section of the Fourteenth Amendment to the United States Constitution, ratified on 9th July 1868, is to the effect that: ‘The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebelling, shall not be questioned.
But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.’
Incidentally, this language in some ways mirrored that adopted in a Peruvian constitutional document, from 1821, which stated that Peru would honour all ‘debts of the Spanish Government that have not been contracted to perpetuate Peru’s slavery or that threaten the other independent states of America’.
Similarly, when in 1898, following the war between America and Spain, the latter accepted US sovereignty over, among others, the territories of Puerto Rico, the Philippines and Cuba – the United States subsequently refused to accept the obligation to pay debts incurred by Spain as against the security of revenues expected from Cuba.
In refusing to pay this debt, the United States argued that: (i) the debt had not been obtained for the welfare of the Cuban people, and had in fact been used by Spain to put down popular uprisings in that territory; (ii) Cuba had not agreed to the debt; and (iii) the creditors were aware that the commitment of Cuban revenue as security for those loans had been done at a time when Cubans were struggling to rid themselves of Spanish dominion.
The same arguments would be invoked by Costa Rica in the famous Tinoco Arbitration of 1923 (Great Britain v Costa Rica), when it refused to pay loans advanced by the Royal Bank of Canada to the despotic regime of Federico Tinoco. It was clear that the loans, which had been advanced in 1919, had been put to the personal use of the dictator Tinoco and his brother (José JoaquÃn Tinoco Granados), rather than for the benefit of Costa Ricans.
In upholding these arguments as against the claim asserted by Great Britain on the part of the Royal Bank of Canada, the sole arbitrator, Chief Justice William Howard Taft (of the United States), found that: (i) the debts had been employed for the private benefit of the Tinocos rather than the welfare of Costa Ricans, and (ii) the Bank had been aware of this fact.
In these circumstances, the debt could not be said to constitute a valid public debt which entailed the responsibility of the State of Costa Rica. More recently, after the US-led overthrow of Saddam Hussein’s government in Iraq, a number of United States officials referenced the notion of odious debt to argue against the obligation to repay more than USD 125,000,000 in unsettled debt incurred by Iraq up to that point.
For instance, the then United States Treasury Secretary, John Snow, observed that ‘the people of Iraq should not be saddled with those debts incurred through the regime of a dictator who has now gone’. Similarly, the then Undersecretary of Defence, Paul Wolfowitz, argued that a significant portion of that debt had been employed ‘to buy weapons and to build palaces and to build instruments of oppression.’
An obvious limitation to the successful invocation of the odious debt doctrine is the reality of power – formal and informal – in international relations and law. This is perhaps best illustrated by the position in which Nelson Mandela’s government found itself with respect to debt incurred by the apartheid regime.
South Africa was a pariah State by the mid-1970s, having been forced out of the Commonwealth in 1961, and the United Nations having recognized apartheid as a crime against humanity in 1973.
Nonetheless, the racist South African government continued to obtain credit from a number of major banks in the United States, the United Kingdom, France, Switzerland and Germany – loans which these actors knew, or ought to have known, were being used to subjugate and oppress the majority of the population in that country.
Notwithstanding the clear legal and moral position against the repayment of such repugnant debt, Nelson Mandela found himself under significant compulsion to avoid a repudiation of these debts.
Nonetheless, the odious debt doctrine remains a powerful tool – moral and legal – in the hands of a captive people, rendered temporarily helpless as an increasingly small circle of ‘relatives, friends and in-laws’ (ab’oluganda, abako n’abemikwano) incur unconscionable loans with limited democratic oversight and even less democratic accountability.
When the music stops playing, as it must at some point, certain difficult and uncomfortable conversations will have to be held between the people of Uganda, on the one hand, and a number of international lenders who continue extending credit to the government, with the knowledge – actual or constructive – that these loans are not only being borrowed in clear violation of the Ugandan Constitution (Articles 1, 2, 8A, 155, 161 and others), but have also manifestly been expended in ways which are inconsistent with the public interest and welfare – immediate and long-term – of Ugandans.
At that point, those lenders should not be surprised when the odious debt doctrine is invoked as a shield against the repayment of such unconscionable obligations.
The writer is senior lecturer and acting director of the Human Rights and Peace Centre (HURIPEC) at the School of Law, Makerere University, where he teaches Constitutional Law and Legal Philosophy
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