Skip to main content

Demystifying Alexander Nahum Sack and the doctrine of odious debt

Eric Tousaint’s study of the odious debt doctrine

by Eric Toussaint

Part 13 - Unilateral debt repudiation by Costa Rica with Washington’s support

In January 1917, the government of Costa Rica, under President Alfredo González, was overthrown by his Secretary of the Army and Navy, Federico Tinoco, who called new elections and established a new constitution in June 1917. The Tinoco putsch was supported by the oligarchy, who rejected the policies of the previous government. For good reason – it had decided to levy a tax on property and a progressive income tax. Tinoco also had the support of the director of the infamous North American transnational United Fruit Company (known since 1989 as Chiquita Brands International), known to have contributed to the overthrow of several governments in Latin America in order to maximise its profits.

The Tinoco government was then recognized by several South American States, as well as by Germany, Austria, Spain and Denmark. The United States, Britain, France and Italy refused to recognize it.

In August 1919, Tinoco left the country, taking with him a large sum of money which he had just borrowed in his country’s name from a British bank, the Royal Bank of Canada. His government fell in September 1919. A provisional government then restored the former constitution and called new elections. Law No. 41 of 22 August 1922 declared null and void all contracts entered into between the executive power and private individuals, with or without the approval of the legislature, between 27 January 1917 and 2 September 1919; it also annulled Law No. 12 of 28 June 1919, which had authorized the government to issue sixteen million colones (the Costa Rican currency) in paper money. It is worth pointing out that the new president, Julio Acosta, at first vetoed the debt repudiation law, arguing that it went against tradition, which was to honour international obligations contracted towards creditors. But the Constitutional Congress, under popular pressure, maintained its position and the President finally rescinded his veto. The law repudiating debts and all contracts entered into by the previous regime constitutes a clear break with the tradition of continuity of obligations of States despite a change of regime. The unilateral sovereign decision by Costa Rica clearly resembles the decisions made in 1861 and 1867 par by President Benito Juárez, supported by the Congress and the people of Mexico, to repudiate the debts claimed by France. It is also in line with the Bolshevik decree repudiating Tsarist debts adopted in 1918.

Great Britain threatened Costa Rica with military intervention if it did not compensate the British companies affected by the repudiation of the debts and contracts. These companies were the Royal Bank of Canada and an oil company. London sent a warship into Costa Rica’s territorial waters.

Costa Rica held to its position of refusing compensation by loudly and clearly proclaiming that: “The nullity of all the acts of the Tinoco regime was definitively settled by a decree of the Constitutional Congress of Costa Rica, which was the highest and ultimate authority having jurisdiction upon that subject, and its decision on that question, made in the exercise of the sovereign rights of the people of Costa Rica, is not open for review by any outside authority.

In order to find a solution, Costa Rica agreed to call in an international arbitrator in the person of William Howard Taft, Chief Justice of the US Supreme Court, to express his opinion on the two main disputes with Great Britain – the Royal Bank of Canada question and that of an oil concession that had been granted by the dictator Tinoco to British Controlled Oilfields Ltd.

By involving Taft, who had been president of the United States from 1909 to 1913, Costa Rica hoped to win its case by taking advantage of Washington’s interest in marginalising Britain in the region. And that is indeed what happened.

Taft’s decision was to reject London’s demands for compensation.

It is important to look closely at Taft’s arguments. Firstly, he clearly establishes the principle that the despotic nature of the Tinoco regime was of no importance.

In his opinion, William H. Taft says: “To hold that a government which establishes itself and maintains a peaceful administration, with the acquiescence of the people for a substantial period of time, does not become a de facto government unless it conforms to a previous constitution would be to hold that within the rules of international law a revolution contrary to the fundamental law of the existing government cannot establish a new government.” Which means that Taft rejects Costa Rica’s argument involving the nature of the Tinoco regime. According to Taft, Tinoco, who de facto exercised control over the State even if he did not respect the constitution, had the right to contract debts in the name of that State. He even adds that Tinoco had the assent of the population.

Taft’s argument, cited above, opens the way to the recognition of revolutionary governments who come to power without respecting the constitution. Taft declares that if we exclude the possibility of an unconstitutional government becoming a regular government, it implies that international law would prevent a people who have carried out a revolution from setting up a new legitimate government – which according to Taft is inconceivable. Of course, in practice, what has happened most often over the last two centuries is recognition (and support by the government in Washington, in particular) of dictatorial regimes who have overthrown democratic regimes, support for these dictatorial regimes in getting financing abroad, and pressure being put on democratic regimes which succeed them to shoulder the debts contracted by the dictatorship. This underscores the difference between the theory, based on the history of the birth of the United States out of rebellion against a constitutional British regime in 1776, and the actual practice and policies of the United States.

Taft’s opinion contains a passage which affirms that the rule of continuity of obligations of States must be respected despite a change in regime: “Changes in the government or the internal policy of a state do not as a rule affect its position in international law. (…) though the government changes, the nation remains, with rights and obligations unimpaired (…). The principle of the continuity of the states has important results. The state is bound by engagements entered into by governments that have ceased to exist; the restored government is generally liable for the acts of the usurper (…)” This clearly shows the conservative nature of Taft’s position.

On the other hand, Taft supports Costa Rica against Britain on the basis of other important arguments. Taft says that the transactions between the British bank and Tinoco are full of irregularities and that the bank is liable for them. He adds that “The case of the Royal Bank depends not on the mere form of the transaction but upon the good faith of the bank in the payment of money for the real use of the Costa Rican Government under the Tinoco régime. It must make out of its case of actual furnishing of money to the government for its legitimate use. It has not done so.

Let’s follow Taft’s reasoning: Tinoco could contract loans even though he took power in violation of the country’s constitution, but he needed to do so in the interest of the State. Taft says that Tinoco contracted the loans from the Royal Bank of Canada for his personal benefit. Taft adds that the bank was fully cognisant of the fact and was therefore a direct accomplice. According to Taft’s reasoning, had Tinoco borrowed money to develop the railway network, the regime that succeeded him would have been under obligation to repay the debt.

Source and references:


[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [14] [15] [16] [17] [18] [19] [20]

Comments

Popular posts from this blog

Former Pentagon official confirms: Trump prepares for war with Iran

globinfo freexchange
Right after Trump's sudden announcement that he will withdraw the US forces from Syria, we had some mixed reactions. Some liberals reacted angrily, but most of the reactions from the liberal machine were rather moderate, or at least not as intensive as someone would normally expect.
On the other hand, Trump's supporters and all those who had enough of the pro-war neoliberal establishment, felt a kind of vindication, as it appeared that Trump would eventually keep its promise for an 'anti-interventionist' policy.
But the blog wrote immediately a 'not so fast' article to explain that most of the Americans and all those who are tired of the US endless wars, should not rush to celebrate. We estimated that Trump's move is probably a sign that he is going to re-organize troops and go after the big target called Iran.
Indeed, shortly after the move, Trump, suddenly again, announced that he will also pullout troops from Afghanistan.
And then, about…

Panicked neoliberal tools attempt to trigger a war of generations against AOC's progressive counterattack

globinfo freexchange
We were slightly surprised to see such an article title in one of the primary info tools of the global neoliberal regime and financial capital. But the subtitle immediately clarified everything.
When we read the title “Alexandria Ocasio-Cortez and the Revenge of the Millennials” of the article in Bloomberg, we thought that we might be in front of a small miracle. We thought that the time has come for some people inside the core of the establishment apparatus to admit that the younger generations have lost dramatically from this brutal system. And so, the time has come to overthrow it, take their 'revenge'.
But no, it was too good to be true.
The subtitle immediately revealed the trick: “The Democrats’ major economic initiatives tend to favor the young at the expense of the old.”
Then, inside the article we read: “Almost every major new economic initiative proposed by Democrats — the Green New Deal, Medicare for all, debt-free college — has a common feature: Un…

Confirmed: Germany builds its own imperialist empire

globinfo freexchange
Almost two years ago we identified Germany's efforts to develop its military in the context of its ambition to build its own sphere of influence.
As we wrote, Brexit will give the chance to Germany to increase influence due to the change of power balance, especially now that France appears weak - crawling behind Berlin's austerity, sado-monetarism and neoliberal destruction. These conditions (created in the Greek experiment), are necessary to Germany in order to retain a model in favor of its surpluses. These could become the solid ground upon which Germany could build a strong, modern military machine.
Therefore, Merkel knows that the economic domination is not adequate for a country to become a major power. It is also important to have a strong military presence in its “sphere of influence”, or, its financial/debt colonies, if you prefer. The German military presence in Lithuania is a first step towards this direction as the Baltic countries have already be…

The desperate efforts of the Western neoliberal establishment to build a new propaganda machine

globinfo freexchange
The UK government and other Western governments and the US in recent years have had increasing difficulties persuading enough of their populations as to the legitimacy of the foreign policies that they have been pursuing.
And at the same time, Western countries have been going through a period of political crisis and economic crisis.
Piers Robinson, Chair in Politics, Society and Political Journalism at the University of Sheffield, further explains:
I think a lot of this drive is as much about trying to shore up shaky official narratives and trying to shore up political systems in a situation of political crisis, as it is actually about countering Russian propaganda.
I would suspect that that's a little bit of an excuse here to really what's going on of problems much closer to home.
This is not just to do to UK, this is Europe-wide. And there are also indications from the documents that they are intending to start to have some kind of impact within the United…

WikiLeaks disturbing and hopeful findings on Tulsi Gabbard's path to progressiveness

The definite detachment from the Clintonian machine
globinfo freexchange
Searching the Podesta emails inside WikiLeaks we found a rather disturbing fact about Tulsi Gabbard who recently announced that she will run for the 2020 US presidency. Iraq War Veteran, Jon Soltz, chairman at VoteVets at the time, sent an email on Aug. 2012 to Hillary Clinton top lobbyist, John Podesta, in order to thank him for his contribution to Gabbard's campaign in Hawaii.
Soltz wrote (emphasis added):
This morning, we are one step closer to making history. In Hawaii, VoteVets PAC-endorsed Iraq veteran Tulsi Gabbard has won her primary, in a stunning come-from-behind victory. If she wins in November, she along with Tammy Duckworth (who we also feel very good about), would be the first female combat veteran ever elected to Congress in United States history! This is happening because of you. Your tens of thousands of dollars in donations for Tulsi's campaign, through VoteVets PAC, allowed her to run a fir…

The difference between Bernie Sanders and Jeremy Corbyn and what the US elections won't allow you to decide

globinfo freexchange
A country that has been completely taken over by the banking mafia and the corporate power will never allow people to decide on the most important issue: the abolition of the dominant system that works against them.
Professor Richard Wolff explains:
Because of Bernie Sanders, particularly, we now have the word Socialism floating around, but typically it's about, more or less, really among Democrats. Like Mr. Sanders is ambiguously an independent but he's also a Democrat.
So, the ‘Socialists’ seemed to be the Democrats who want to do more for people. Social welfare, social supports, state supports, versus those who don't want to do quite so much - the centrist Democrats, like Clinton and Obama.
But the real question is a program of change. Socialism is a change of system it goes away from capitalism to do something else. It would be interesting if we could have an election ‘do we want that?’, ‘would we like a different system?’.
There are countries doing t…

The IMF is dismantling Argentina all over again

Part 1
In September, Argentine president Mauricio Macri accepted the 2018 Atlantic Council’s Global Citizen Award. In attendance were many of world’s neoliberal power players and policy makers, among them International Monetary Fund (IMF) Managing Director Christine Lagarde.
Facing the crowd, Macri gleefully admitted that “with Christine, I have to confess we started a great relationship some months ago,” referring to a series of loan agreements with the IMF amounting to $57.1 billion dollars. “I expect that this is going to work very well, and we will end up with the whole country crushing on Christine,” he continued.
This dynamic of chasing an improved image with the world’s big banks and the dominant economies in the West is emblematic of Macri’s priority to secure a relationship with the IMF and improve the country’s image with global financial institutions. But it comes at a devastating cost for the majority of the population who will suffer from neoliberal policy prescriptions of…

How neoliberalism manufactured consent to secure its unlimited power

From David Harvey's A Brief History of Neoliberalism
Part 11 – The Reagan/Thatcher neoliberal legacy: a bizarre form of a sinister political doctrine from which it would be difficult one to escape
But Thatcher had to fight the battle on other fronts. A noble rearguard action against neoliberal policies was mounted in many a municipality –– Sheffield, the Greater London Council (which Thatcher had to abolish in order to achieve her broader goals in the 1980s), and Liverpool (where half the local councillors had to be gaoled) formed active centres of resistance in which the ideals of a new municipal socialism (incorporating many of the new social movements in the London case) were both pursued and acted upon until they were finally crushed in the mid-1980s.
She began by savagely cutting back central government funding to the municipalities, but several of them responded simply by raising property taxes, forcing her to legislate against their right to do so. Denigrating the progressive…

Banishing Truth

by Chris Hedges
The investigative reporter Seymour Hersh, in his memoir “Reporter,” describes a moment when as a young reporter he overheard a Chicago cop admit to murdering an African-American man. The murdered man had been falsely described by police as a robbery suspect who had been shot while trying to avoid arrest. Hersh frantically called his editor to ask what to do.
The editor urged me to do nothing,” he writes. “It would be my word versus that of all the cops involved, and all would accuse me of lying. The message was clear: I did not have a story. But of course I did.” He describes himself as “full of despair at my weakness and the weakness of a profession that dealt so easily with compromise and self-censorship.
Hersh, the greatest investigative reporter of his generation, uncovered the U.S. military’s chemical weapons program, which used thousands of soldiers and volunteers, including pacifists from the Seventh-day Adventist Church, as unwitting human guinea pigs to measure…

All the right progressives are running for 2020 ... but they need a really smart strategy to have a chance against the neoliberal beast

globinfo freexchange
More than a year ago we wrote that the 2016 electoral process in the US was particularly useful because it highlighted many interesting unprecedented aspects. One of them, is that you don't need the mainstream media to promote you. Especially the young Americans discovered and promoted Bernie Sanders through the independent and social media on the Internet. Another aspect, is that you don't need big money to support you. These new conditions could be proven valuable towards the creation of a third political movement, coming straight from the people, which could seriously challenge the current corrupted political establishment.
We also wrote that we can think at least four progressives that should join forces to lead such a political movement right now: Jill Stein, Bernie Sanders, Tulsi Gabbard, Elizabeth Warren.
Three of them already revealed their intention to run for the 2020 US presidency. Assuming that the Greens won't change leadership, Jill Stein wi…