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European Tribune - Odious debts have odious debtors
There is a long-standing precedent for countries refusing to pay "odious" debts - debts that were run up by repressive, colonial or otherwise illegitimate regimes. Similarly, a case can be made that countries who have been saddled with unpayable levels of IMF credit should be able to jettison these liabilities.

If I understand correctly this was a principle that mostly was used by Latin American countries in the 19th century - and also by the US when "liberating" such countries. It has since fallen out of use though attempts has been made to resurrect the principle.

Does anyone know when it was last used succesfully?

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by A swedish kind of death on Wed Aug 19th, 2009 at 03:44:36 PM EST
I was doing a bit of research in 2004-5 on some Latin American topics, at which time there'd been a lot of talk about renewing the practice.  I seemed to recall that Ecuador was seriously considering it, so I just did a quick and dirty search.  I can't vouch for the blogs linked here, having never heard of them before, but it appears that it's an ongoing thing:

Sept, 2008:  President Rafael Correa declared on Friday that Ecuador would not make a $30.6 million interest payment on $510 million in bonds due in 2012, calling the debt illegal.

The default on the Global Bonus 2012 bonds means that Ecuador is also defaulting on Global 2015 and 2030 bonds. The default totals $9.937 billion, 19 percent of the country's GDP. Ecuador has assembled a legal team to fight expected lawsuits and hopes to use the default as leverage to renegotiate the debts.

(...)The Confederation of Ecuadorian Kichwas (ECUARUNARI), the powerful Andean branch of the country's indigenous peoples movement, has long called the foreign debt illegal and illegitimate. "We have not acquired any debt. The so-called public debt really belongs to the oligarchy. We the peoples have not acquired anything or been benefited, and thus we owe nothing."

And the numbers here startled me.  I remember reading about the proposal, but had no idea it had taken off.  If accurate, this seems significant.

Oct., 2007:  (...)An Alternative to Debt Slavery - The Bank of the South

Last December, Hugo Chavez announced his idea for a Banco del Sur, or Bank of the South, as part of his crusade against the institutions of international capital he calls "tools of Washington." The bank will be officially launched at a presidential November 3 summit in Caracas, where it is to be headquartered, with seven founding member-states - Venezuela, Argentina, Brazil, Uruguay, Paraguay, Bolivia and Ecuador.

On October 12, Colombia's President Alvaro Uribe announced his nation agreed to become the eighth member but said "The decision is not a rejection to the World Bank or Inter-American Development Bank, but a sign of solidarity and fraternity towards the South American community." At this time, only four South American states aren't included - Chile, Peru, Guyana and Surinam, but Chile seems likely to come aboard following Colombia's lead, and the others may decide to join them.

(...)In 2005, 80% of IMF's $81 billion loan portfolio was to Latin America. Today, it's 1% with nearly all its $17 billion in outstanding loans to Turkey and Pakistan. The World Bank is also being rejected.

Perhaps it bears further research (I don't have time today) -- has anyone here heard anything about this?

Maybe we can eventually make language a complete impediment to understanding. -Hobbes

by Izzy (izzy at eurotrib dot com) on Wed Aug 19th, 2009 at 04:43:20 PM EST
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Chris Cook has done some work on the Bank of the South. It's probably worth a diary.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Wed Aug 19th, 2009 at 04:48:33 PM EST
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I think I posted something about the Ecuadorian response to debts to Citi back in 2008.  Can't recall specifics, but it appeared that the issuance of those bonds on those terms may have involved serious misconduct by Citi and Ecuadorian officials in a previous administration.  This was the pattern during "The Latin American Debt Crisis" of the 1980s, which was really a crisis of US banks having loaned far more to Latin American countries than they could afford.

This was tied into the oil shocks, which vastly increased the revenue and wealth in oil exporting countries, but increased monetary flows out of oil importing countries.  The mid east producers, especially Saudi Arabia, were concerned to recycle the petrodollars so as to minimize dollar inflation, as oil is denominated in dollars.  This left some of the big US banks flush with money to profitably invest.

The US banks, in the finest tradition, saddled up Latin American nations with as much debt as they conceivably carry, often with significant inducements to local elites, the results of which were that the local elites were mostly concerned that the loans got made, for their "commissions", but not that the loan be profitably invested.  Much of the proceeds of the loans, aside from the "commissions" ended up being "privatized" by elites further down the feeding chain, and when the bloom came off the rose in the '80s, surprise! the debtors couldn't pay.

One description of this process can be found here.  My guess is that in many cases, Latin American governments made loan payments out of loan proceeds, until they ran out of proceeds, hopefully after they left office and the country for Switzerland or other more salubrious climes.


"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 21st, 2009 at 02:13:08 PM EST
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