Spotlight on Geopolitics

Egypt’s Odious Debt Legacy

In an op-ed recently published on Project Syndicate (“Mubarak’s Odious Debts”), Saifedean Ammous, an economics lecturer from Beirut University, calls for the repudiation of the debt accumulated by Egypt during Mubarak’s 30-year rule. He makes a compelling case on behalf of a country experiencing severe social and political problems. Thus, according to Ammous, the public debt servicing costs eat up a full 22 percent of the Egyptian government’s total expenditure, a share that is bigger than the budget for education, healthcare and housing combined. In an impoverished country like Egypt, this is a huge burden imposed on its population by the former dictator, one which could nip in the bud any economic recovery prospects.

The doctrine of odious debt has been formalised by Russian law scholar Alexander Sack in 1927 and accepted since. According to Sack, “an odious debt is one that was contracted against the interests of the population of a State without their consent and with full awareness of the creditor”. The first case of debt repudiation happened in 1898, when the USA refused to assume Cuba’s debt to Spain because “the country had not consented to the debt and because some of the money was used to suppress popular uprisings, with the knowledge of the creditors”. More recently, the US Congress initiated the cancellation of Iraq’s odious debt in 2003, after the overthrow of the Hussein regime, although it invoked debt sustainability instead.

The best-known paper on the subject was written by law professor Robert Howse, namely “The Concept of Odious Debt in Public International Law”, published by UNCTAD in 2007. He concludes that the refusal by some states to repay an odious debt is more or less established in practice in international law and could be invoked as a strong bargaining chip in renegotiating a country’s public debt with its creditors.

Less forthcoming on the issue is, unfortunately, the World Bank, which in a 2008 paper has claimed that the concept of odious debt is fuzzy and the practice of refusing payment by invoking it does not have a sound legal basis. This, to be sure, is to be expected from an organisation that has been known to lend money to various dictatorships in Latin America and elsewhere in the past, all in the name of economic development or for so-called “structural adjustment purposes”.

Egypt’s difficult economic situation warrants such an approach to debt relief and EU officials should take the lead in lending a hand. After all, EU aid had also contributed to priming the pump of Mubarak’s dictatorial machine, a fact that aggravated the living conditions of ordinary Egyptians over the past two decades. In so doing, EU decisionmakers could also make a positive contribution towards deterring international creditors from lending large amounts of money to dictatorial regimes in the future (sources: Project Syndicate, UNCTAD and World Bank papers)

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