Illegitimate international debt
How do you declare international debt illegitimate?
When is debt so odious that the taxpayers of a government have no obligation to pay it back?
This is a huge, important question. It’s a question currently plaguing Argentina and Greece, for example. Individuals in both countries have explained to me that the debt was taken on by previous regimes that stuffed their own pockets, and then amplified by terrible deals with predatory investment banks. The average individual citizen feels very little personal responsibility to pay that debt back, consisting as it does of interest payments to the banking system.
The movie we showed at Alt Banking last week, Who’s Saving Whom, also made the case that Spain could declare its taxpayer debt illegitimate, considering that the banking system got bailed out on the taxpayer dime.
Well, now the Center for Global Development has come up with an idea in this direction, called Preemptive Contract Sanctions (hat tip Philip Sterne). They’re aiming it at Syrian debt for Russian arms, and claiming that this debt is odious and illegitimate from the outset. The idea is, if the international community can get together and agree that such debt is odious, and that they will not lift a finger in the future to help the borrower get their money back, then it would be harder to borrow the money, and maybe even impossible, and it wouldn’t saddle future citizens of Syria with that burden.
It’s an interesting idea – see the video here:
It wouldn’t necessarily help solve the current debt crises of Argentina and Greece, which built up over many years, but I like the idea of all debt living on a spectrum of morality. Too often when contracts enter the financial system, they are utterly sanitized and legitimized in the eyes of the international community.