SYDNEY, NEW YORK, WASHINGTON DC, Aug 16 2024 (IPS) – Bangladesh has become increasingly indebted since 2009. The country’s external debt stock increased from US$23.3 billion in 2008 to US$100.6 billion in December 2023 (see figure below). Thanks to the country’s mega-projects led so-called development with borrowed money under the now deposed authoritarian regime of Sheikh Hasina.
Odious debt is a concept in international law that refers to debt incurred by rulers who borrowed without the people’s consent and used the funds either to repress the people or for personal gain. There are moral, economic and legal arguments for not re-paying the odious portion of debts.
Autocrat’s debt bonanza
Bangladesh’s average external debt stock jumped from US$10.7 billion over more than 3 decades (1972-2008) to US$52.6 billion during 2009-2023 when Hasina’s autocratic regime consolidated power by unprecedented machinating three consecutive elections, making State institutions partisan and unleashing brutal repressions.
Corruptions, money laundering, and poor project management as well as selections meant that the revenue flows or returns from these mega-projects are far less than what is required for servicing the debt. Gross external debt-GDP ratio increased from around 28% in 2016 to around 37% in 2023. Likewise, external debt-export earnings ratio increased from 56.3% in 2016 to 116.6% in 2023. These key indicators indicate that Bangladesh is heading for a corruption induced debt crisis, temporarily given respite by the International Monetary Fund (IMF).
The IMF’s loan will have to be repaid with interests; paying debts by borrowing; or using one line of credit to pay for another line of credit cannot be sustained for long. There are better ways to deal with unstainable debts, especially when the indebtedness is due to creditors’ continued lending despite well-documented evidence that the borrowed money is misused and siphoned off the country.
Such debts are odious, and violate the Principles on Promoting Responsible Sovereign Lending and Borrowing, developed by the United Nations Conference on Trade and Development (UNCTAD). These Principles demand that lenders refuse to lend to the regime, thus preventing wasteful or harmful spending. These Principles not only make a repressive regime less likely to survive but also ensure debt sustainability.
Core international legal norms and principles, such as Good Faith, Transparency, Impartiality, Legitimacy and Sustainability are applied in the UNCTAD Roadmap and Guide to Sovereign Debt Workout Mechanisms and in the UN General Assembly resolution A/RES/69/319 on Sovereign Debt Restructuring Processes, adopted in September 2015.
Moral, economic and legal arguments for repudiating odious debts
The prospect of yoking innocent generations of citizens to the repayment of a corrupt and repressive regime’s profligate debt is simply distasteful; morally repugnant; economically untenable, and legally indefensible.
The economic justification for repudiating odious debts rests on the prospect of increasing the welfare of the country in at least three ways: (1) there will be a lower debt burden to service; (2) odious regimes, which reduce welfare, are less likely to emerge; and (3) should they emerge, they are less likely to survive for a long time.
The legal argument for repudiating odious debts is consistent with the accepted view that equity constitutes part of the content of the general principles of law of civilized nations, one of the fundamental sources of international law stipulated in the Statute of the International Court of Justice. Thus, the international law obligation to repay debt can never be absolute, and has been frequently limited or qualified by a range of equitable considerations, some of which may be regrouped under the concept of odiousness.
In many countries legally individuals do not have to repay if others fraudulently borrow in their name, and corporations are not liable for contracts that their chief executive officers or other agents agree to without any authority.
An analogous legal argument is: sovereign debt incurred without people’s consent and not benefiting the people should not be transferable to a successor government, especially if creditors are aware of these facts in advance.
