TCS Daily


Debts, Moral and Financial

By Pejman Yousefzadeh - April 18, 2003 12:00 AM

One particular issue poses an obstacle to economic recovery in Iraq: the debts that the country has outstanding to France, Germany and Russia. Much of that debt stemmed from Iraq's purchase of weapons from those countries. Little to no part of the debt stemmed from the desire of Saddam's regime to help the Iraqi people in any tangible way. Instead, Saddam piled on debt in order to furnish his military with weapons, while allowing his potentially rich people to languish in squalor and poverty. Now with Saddam's regime out of the picture in all but name, a new Iraqi government will have to contend with the debt Saddam's regime left behind.

There is, however, a doctrine that has gained some acceptance in international law that might be able to help Iraq solve its debt problems. This is the "doctrine of odious debts." As Michael Kremer and Seema Jayachandran tell us, the doctrine was developed at the end of the Spanish-American War in 1898. At that time, the United States argued that neither America, nor Cuba should be responsible for the debt to Spain incurred without the consent of the Cuban people, especially because that debt financing did nothing to augment the lives of the Cuban people. Spain never officially accepted this argument, but it did take responsibility for the debt as part of the terms of the Paris Peace Treaty. Blogger and TCS contributor Joe Katzman points out a deliciously ironic aspect of the doctrine of odious debts, given that part of the Iraqi debt is owed to France-it was a French international lawyer, Alexandre N. Sack, who formalized the doctrine of odious debts after World War I.

The debt owed to France, Russia and Germany is completely at odds with any sense of fair play and justice. It shocks the conscience to think that a democratically elected Iraqi government and a freed Iraqi people would somehow be forced to pay for the military spending spree indulged of Saddam Hussein. It was bad enough that the Iraqi people had to suffer through Saddam's rule while he was in power. It would be even worse if they have to suffer aftereffects of his rule now that he is gone-aftereffects that could potentially be avoided altogether.

The fact that France, Germany and Russia opposed military action to rid Iraq of Saddam's regime should also play a part in deciding what should be done about Iraq's debt. It is likely that much of the opposition to the war evinced by the three countries was due to their fear that a post-Saddam government would not honor the previous government's debts to those countries. As such, the three countries opposed a military action that has brought about the liberation of the Iraqi people in order to ensure that Iraq-under Saddam's regime-would feel bound to pay its debts to them. Again, one's sense of fair play and justice is offended by these circumstances. France, Germany and Russia pursued policies that would have kept a brutal dictator and his regime in power even today-just so that they could collect on a debt incurred by that dictator, without the consent of his people. Why should the three countries be allowed to profit and be rewarded by that policy?

Realpolitik could also justify enacting the doctrine of odious debts in the present circumstance. Continued attempt by the French, Germans, and Russians to frustrate the policy goals of the United States and Great Britain-policy goals that helped bring about the liberation of the Iraqi people-should not be forgotten. Until a provisional Iraqi government is set up, and even during the administration of that government, the U.S. and Great Britain will have a substantial say in the reshaping of post-Saddam Iraq. They should use that authority to make clear to France, Germany and Russia that they cannot expect to profit from their opposition to American and British policy regarding Iraq.

The doctrine of odious debts should prevent the debts incurred by the regime of Saddam Hussein from being honored. Those debts were incurred without the consent of the Iraqi people, and the debt financing was primarily and overwhelmingly for the purpose of the aggrandizement of Saddam's regime. It did nothing to help the Iraqi people. The French, the Germans and the Russians also did nothing to help the Iraqi people by opposing the very policies that brought about their liberation. The only thing the French, Germans and Russians did do was to try to block the goals of the liberators of the Iraqi people-the United States and Great Britain. Now that those liberators are in a position to substantially influence the shape of post-Saddam Iraq, they should remember that the only valid debt owed is not the financial one to the French, the Germans or the Russians. Rather, it is a moral debt to the Iraqi people to see to it that their society, their system of government, and yes, their economy, is rebuilt as quickly and comprehensively as possible.
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