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03 April, 2017

Demystifying Alexander Nahum Sack and the doctrine of odious debt

Eric Tousaint’s study of the odious debt doctrine

by Eric Toussaint

Part 15 - Arguments used by Taft which could inspire Greece, Argentina, Tunisia, etc.

Certain arguments used by Taft are useful to the cause of the Greeks and other peoples groaning under the weight of debt.

Taft asserts that the debts and other obligations contracted by Tinoco are null and void because he did not adhere to the constitution he himself had had adopted after his coup. That constitution stipulated that the type of obligations Tinoco had contracted required a joint vote of the Senate and the Chamber of Deputies. However, only the Chamber of Deputies had voted in favour of granting the oil concession and the tax exemptions to the British company. Consequently, according to Taft, the contract was not valid.

As many Greek jurists and the Greek Debt Truth Commission have pointed out, Articles 28 and 36 of the Greek constitution were violated at the time of the adoption of the Memorandum of Understanding of 2010, which resulted in the accumulation of a new debt of 120 billion euros. Regardless of the democratic or non-democratic nature of the regime in place in Greece, the fact that it contracted obligations toward creditors in violation of the Greek constitution, is in itself an argument for nullity. Obviously numerous other arguments can be added to that one in establishing the legality of repudiating the debts whose repayment is being demanded by Greece’s current creditors.

If we move to another spot on the planet, that argument could also be used in Argentina to justify repudiation of the obligations contracted with foreign creditors by the various democratic regimes that have succeeded one another since the fall of the dictatorship in 1983. Argentina’s constitution does not allow the courts of another State to be given jurisdiction when the nation contracts debts or other types of obligations.

Another argument in the opinion handed down by Taft is useful. Recall that Taft declared that the Bank “[…] must make out its case of actual furnishing of money to the government for its legitimate use.” It is clear that the creditors who have granted loans to Greece, Portugal, Cyprus, Ireland and Spain since 2010 are incapable of demonstrating “furnishing of money to the government for its legitimate use”, since that money has served mainly to repay foreign banks in the major lender countries and the loans were granted on condition that policies contrary to the interests of the country be conducted.

This argument also applies to the debts contracted by Tunisia and Egypt after the fall of those dictatorships in 2011. The debts were not contracted in the interests of the people and of the nation. They were not contracted for legitimate purposes.

In conclusion, the interest of Taft’s ruling is that it does not base the nullity of the debts claimed against Costa Rica on the despotic nature of the regime that contracted them. Taft’s ruling is founded on the use that was made of the loans and on adherence to the country’s internal legal standards. Taft’s ruling affirms that while in principle there is a continuity of obligations of States even in the case of a change of regime, those obligations may be repudiated if the funds borrowed were not used for legitimate purposes. He adds that if the contracts resulted in violation of the internal rules in force in the country (for example its constitution) or contain irregularities, that country has the legal right to repudiate those contracts.

We have no sympathy for Taft and it is obvious that his motives were anything but disinterested. But whether we like it or not, Taft’s arbitration constitutes an international reference for application of the law with respect to debts and other obligations. It is fundamental for States to avail themselves of their right to repudiate illegitimate debts.

Source and references:


[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [16] [17] [18] [19] [20]

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