Sovereign borrowing without odiousness: legal instruments to substitute the odious debt doctrine in the repudiation of sovereign debt

Where sovereign debt was found unjustified, occasionally attempts were made to declare this debt null and void. In order to facilitate this repudiation of debt in situations that are considered gravely unjust, Alexander Nahum Sack proposed the odious debt doctrine according to which debt is odious for the people of the entire state, when a despotic regime contracts and utilises a loan in ways that are not in the interest of the state or the population, but rather to strengthen itself, to suppress a popular insurrection, etc..1 The common denominator of all cases in which attempts were made to put the odious debt doctrine into effect is the unconscionable character of the loan agreement and its fulfilment but a successful application of the odious debt doctrine has yet to happen. Even in cases where governments publicly committed the gravest human rights violations, such as Saddam Hussein’s regime in Iraq2 and the South African Apartheid regime, the sovereign debt was not declared odious.3
The thesis clarifies why the odious debt doctrine has never been applied in practice and what legal options exist instead to repeal any kind of sovereign debt that is considered unjustified. To this end, the thesis analyses first the circumstances that influence sovereign debt and the deficiencies of Sack’s proposal, after which it becomes clear that debt repudiation does not depend on the perceived legitimacy of the government. Therefore, the thesis examines the use of legal principles to repudiate debt, independent of the form of government in the following chapters. Since rule of law principles, human rights law, case law of a variety of jurisdictions, the legal analysis of economic practice and contract law offer sufficient means to legally repudiate sovereign debt where necessary, this thesis suggests that the odious debt doctrine is redundant.
Due to the increased importance of private lending, this thesis focuses on loan contracts between private lenders and ruling powers and their impact on the states’ population.