The Illegitimacy of Debt and Illegitimate Debt Lidy Nacpil Jan 15, 2009

1. The Illegitimacy of Debt and Illegitimate DebtLidy Nacpil Jan 15, 2009

2. Beyond the Discourse of Debt Service Impacts & Debt "Sustainability“ • For a long time – discourse on debt was dominated by • The issue of impacts of debt servicing (and debt conditionalities) • The question of debt "sustainability"

3. Beyond the Discourse of Debt Service Impacts & Debt "Sustainability" • The impact of debt service is definitely a very critical and most obvious aspect of the problem: • Impact on public spending for basic services and other needs • Impact on the the ability of countries to develop

4. Beyond the Discourse of Debt Service Impacts and Debt "Sustainability" • Debt "Sustainability" -- is the framework which the lenders use to determine the extent of the debt problem, which countries are to be given debt relief and debt cancellation • This simply means the ability of countries to absorb and pay debts – (able to pay continuously; debt crisis to lenders is when regular, on time and sufficient payments are threatened or disrupted)

5. Beyond the Discourse of Debt Service Impacts and Debt "Sustainability" • Some debt campaigns have challenged the lenders' definitions of debt sustainability using the human development and human rights approach, • i.e. -- "what level of debt service can a country afford without threatening their capacity to provide for human development, or without their capacity to ensure basic rights to education, health, water, decent housing etc. but...

6. Beyond the Discourse of Debt Service Impacts and Debt "Sustainability" • The alternative framework offered still does not go beyond the question of affordability -- they simply assert other standards of defining affordability

7. Beyond the Discourse of Debt Service Impacts and Debt "Sustainability" • The impact of debt servicing or debt payments, while a critical dimension of the debt problem, is not the only central issue • Debt sustainability defined in a progressive way, in a world where lending/borrowing and consequently debt servicing will continue, may be a valid question, but this should not be the sole nor main basis for debt cancellation.

8. Beyond the Discourse of Debt Service Impacts and Debt "Sustainability" • Debt campaigns have been working to change the terms of the debate to a broader framework that raises the question of illegitimacy of the debt and/or illegitimate debt • Takes into account the issue of impacts, but broadens the discourse to raise other critical questions about debt

9. Beyond the Discourse of Debt Service Impacts and Debt "Sustainability" • Looks at the debt problem in broader historical, political and economic context • Includes the analysis and critique of the system that has spawned the debt problem • Does not reduce the rationale for debt cancellation to an issue of affordability even if this is set on higher, human development and human rights standards

10. Illegitimacy of Debt and Illegitimate Debt • Illegitimacy of Debt – systemic, historical, structural, political economy analysis and perspective – refers to the debt as a whole • Illegitimate Debt – refers to specific debts, definition of illegitimacy may range from comprehensive, historical structural, to more narrow or specific bases and criteria

11. Illegitimate Debt • The term and general concept of illegitimate debt is not of recent origin. In the 1980’s, debt campaigns raised the issue of illegitimate debts, using various descriptions – onerous, fraudulent, immoral, odious etc. • In the early 1900s, the concept of odious debt (one type of illegitimate debt) was developed by Alexander Sachs. It has since been the subject of academic and legal studies & papers. • Illegitimate Debt is now a major focus of many debt campaigns and advocacy groups throughout the world.

12. What is Illegitimate Debt • There is broad consensus in the global debt that the term refers to unacceptable, irregular, inappropriate, irresponsible, dubious, fraudulent features of debts, features that go against widely accepted legal, political, financial, economic, environmental and most especially ethical standards and principles. • But there is no firm consensus yet as to its precise definition, coverage, application and translation into policy.

13. What is Illegitimate Debt • There are ongoing studies and discussions that include looking into international and domestic law, human rights, economics, governance and development policy to develop more rigorous definitions, analytical tools and policy instruments on the concept of illegitimate debt.

14. Dictionary definition of illegitimacy • il·le·git·i·mate·adjective 1.Not carried out, made or constituted in accordance with the Law, or with Rules governing a specific activity, or with Social Norms and Customs 2. Not in accordance with accepted standards 3.Departing from the regular; Irregular 4. Inappropriate 5. Not legal or fair 6. Outlawed, Unlawful, Illicit 7. Unauthorized, Unwarranted 8. Not genuine; Spurious 9.Improper 10. Unacceptable *** ***Culled from definitions of several dictionaries, leaving out references to illegitimate offspring

15. What is Illegitimate Debt • Should not be approached as an already established academic or legal concept • The concept is based on experiences of the peoples of the South-- a systematic articulation, analysis and address of these experiences. • The framework of debt sustainability does not cover many of these dimensions, no matter how progressively defined.

16. Illegitimacy is more than just legality. • Support and resonance to be found in present laws (national and international), but • Laws do not YET adequately cover and address all the issues being raised in the work on illegitimate debt. • Definitions not rooted solely in law, but, • Fully appreciate of the value of using legal instruments to explain the concept, gain recognition of the problem, and compel action.

17. The notion of legality and legitimacy are linked, • However, prevailing laws cannot adequately cover the notion of illegitimacy; Nor can we presume that something that is legal is necessarily legitimate • Hence the need to review, change, develop and expand laws

18. There are a range of perspectives: • From the more radical: • looks at debts not only in their specific and immediate circumstances, nature and consequences – but from a broader, historical and systemic analysis; • To a narrower and arguably more easily empirically verifiable definition of illegitimate debt

19. Basic Definition – from a Southern perspective • Illegitimate Debts are those which cannot be rightfully claimed as debts of the peoples of the South. • Involve the gross violation of of basic assumptions of debt contracts, as well as widely accepted ethical, social, political, economic, environmental values, standards and principles. • Cause harm to the well being of the people and communities in whose name the debts were incurred and who are the ones paying for these debts.

20. Areas where anomalies, irregularities, fraud, violations, injustices occur • circumstances surrounding the contraction of the debt (can be immediate, can also include broader, historical context); • the nature of the contracting parties • the relationship between the contracting parties (including the imbalance of power which shapes the financial relations) • the terms of the contracts

21. the processes of lending and borrowing; of how the debt was incurred • how the funds were used, misused, abused • how debts and access to credit are used as leverage to impose conditionalities • the implications and impact of attendant conditionalities • the impacts of servicing these debts • the impact and implications of “indebtedness” and the “dependence” on borrowing

22. Basic assumptions of debt contracts • The contracting parties are clearly authorized and clearly have the mandate to act in behalf of the constituency in whose name they are contracting the agreement. • The contracting parties have the common obligation of being transparent and accountable to the constituencies in whose name they are contracting the agreement, and that the agreements must respect this obligation.

23. The agreement being contracted is for the benefit of the constituencies in whose names they are contracting the agreement. • The agreement, and the attendant terms and obligations, should be fair and mutually beneficial. It should not be grossly disadvantageous, or outrightly harmful to one party.

24. “Widely accepted” ethical, social, political, economic, environmental values & principles • We assume and invoke a collective or community sense of justice & fairness, a sense of what is right, what is for the common good. These common values and principles include: • Basic Human Rights • Sovereignty and Self-Determination of Peoples and Nation-States • The Obligation of States and public officials to act in the interest of their constituency

25. Democratic Process, Democratic Governance, which includes transparency and accountability • Sustainable use of ecological and environmental resources • Relations based on Parity, Mutual Respect, Mutual Benefit, Fairness, Transparency, Mutual Accountability and Responsibility; Non-interference and non-aggression

26. Many of these are not just assumed or asserted -– There are established laws, customs and codes, treaties and in fact United Nations covenants and agreements as evidences of wide acceptance, and as declaration of commitment and obligation to uphold these values and principles.

27. Typology • Odious Debt • Onerous debts • Fraudulent Loans • Criminal Debts • Oppression Debts • War Debts • Corruption Debts • Elitist Debts • Rescue Debts • etc

28. Illegitimate Debt and Odious Debt Illegitimate Debt – broader term Odious Debt – a type of illegitimate debt • involves the question of whether a state which contracted the debt is illegitimate, which therefore makes the debts it contracted illegitimate as well

29. Illegitimate Debt and Odious Debt • In the beginning - included the question of state succession (whether a successor state recognizes the previous state and its debts as legitimate) • More recent assertions – must include 3 elements – consent of the people, benefit to the people, knowledge of lender

30. Odious Debt – there is no firmly established consensus either on its precise definition as a concept. For instance whether to limit it only to how A. Sacks defined it, or to approach the definition in terms of how the concept has evolved through the years (as expressed in all relevant writings and practice)

31. The Question of Illegitimate Debt • Lays further, firmer grounds for demanding debt cancellation and repudiation as a matter of justice • Points to what has to be transformed and the alternatives to be established in the policies, practices, processes, power relations and structures of the economic system (national and global), as well as to broader political & economic changes

32. LENDER RESPONSIBILITY • There is this misconception that illegitimate debt largely refers to the nature, misconduct & irresponsibility of the borrowers. • South movements would be the first to refuse to exempt our governments and govt officials from blame as we know first hand their crimes and the flaws of our political systems and economic structures. • But illegitimate debt is also about, and in many cases primarily about the responsibility and culpability of lenders.

33. LENDER RESPONSIBILITY • Even in the case of illegitimate Southern governments -- history shows that many dictatorial regimes in the South were cultivated if not directly installed by northern governments in collusion with multinational corporations, that corruption was not only overlooked by donors and lenders - it was used as an instrument to ensure loyalty and malleability of their allies in the South.

34. It is crucial to note that international financial transactions are conducted in the context of grossly unequal power relations. It is the powerful parties that drive processes and shape agreements and therefore carry more of the culpability for illegitimate debt and responsibility for the process, nature and outcome of financial transactions, including feeding corruption and propping up dictatorships.

35. In international campaigning – “Lender Responsibility is a useful term/concept that must be asserted. • The unprecedented and very much welcome case of the Norwegian Debt Cancellation -- the Norwegian govt acknowledged that the irresponsibility and the inappropriate nature of the transaction was their responsibility • Again this does not mean we absolve South governments, officials and the South elites from their responsibility and culpability

36. Further underscoring the Illegitimate Nature of the Debt • The debts have actually been paid many times over by the people of the South, in financial terms, as well as in economic, social and environmental terms. • It is the North that owes the South -- historical, social and ecological debts.

37. Historical, Social & Ecological Debt • Historical, social debt-- in the history of colonization and under the current globalize system • Net outflow of resources from the South to the North. Our resources and labor generate the wealth -- which flows from our countries to the rich countries. • Exploitation of slave labor, colonial labor, now migrant labor • Exploitation, annihilation of indigenous knowledge, culture etc

38. Historical, Social & Ecological Debt • Ecological Debt – • exploitation and plunder of our environmental resources and biodiversity • environmental damage – in the South and of the global commons • the climate crisis

39. The perspective on the illegitimacy of debt is based on a critical, holistic and rigorous understanding of historical and prevailing realities. It is also a perspective that is EMPOWERING for the peoples of the South. From this perspective, the eradication of the debt problem is a matter of justice -- not forgiveness nor charity.

40. Goals • Debt cancellation – by lenders • Debt Repudiation – by Southern governments • Changes in the Financial and Economic System (national and global) • Political Changes – as a requirement and an outcome