Saddam's Odious Inheritance

Imagine if a crook maxed out your credit cards without telling you. If you live in America, he wouldn't be able to do too much damage. Like any civilized country, the United States refuses to honor debts that were incurred through theft or fraud, so you wouldn't be stuck with the whole bill.

But in the Hobbesian jungle of international relations, the law is not nearly as civilized. To illustrate, imagine if a crook took over a country through undemocratic and illegitimate means, and then ran up the government debt while allowing the economy to stagnate. (Quit yapping, Republicans...I'm not talking about George W.).

Since the people of this country never benefited from the borrowed cash, nor had any say in how it was spent, you would think it only fair that they not be forced to pay the money back. Think again.

Under international law, all nations (through their taxpayers) are obligated to pay their sovereign debts, regardless of the odious past of a loan. It doesn't matter if the taxpayers had no say in how the money was spent. It doesn't even matter if the lenders knew that their credit would prop up a dictator and finance oppression. The creditors are entitled to get their money back, and any country that defaults will suffer the fate of a financial pariah.

Take Iraq, for example, who The New York Times reports to owe $383 billion, thanks to three decades of misrule by dictator Saddam Hussein. That comes out to $16,000 per person in a nation where the average citizen makes $2,500 per year. This week the Iraqi Governing Council began to take control of the government's day-to-day operations, and will ultimately be responsible for rebuilding the country. But before the Council can help Iraq recover--before it can rebuild schools and hospitals, or ensure security for its citizens--Saddam's old creditors will inevitably call.

Two Harvard economists, Michael Kremer and Seema Jayachandran, recently proposed a solution to this manifest injustice. If a government incurs debt without the consent of its people and without spending the money to benefit its citizens, the debt should be declared illegitimate and the international community should refuse to honor it. Then creditors would refuse to support the regime with loans lest they never see their money again.

In an era where America is strikingly divided between Right and Left, the elimination of public debt is something that both conservatives and liberals can love. For the Left, it would remove a giant obstacle that keeps the poorest of the poor from improving their lives. And since debt nullification attacks a regime directly without impoverishing the people who live there, it is a welcome alternative to trade sanctions,.

For Conservatives, eliminating odious debt would be a giant tax cut for the world, shrinking the size of dozens of illegitimate governments. With less credit going to corrupt regimes, more will be available to private enterprises, who could invest to their hearts' content wherever they choose.

Also, debt nullification is a way for Conservatives to unapologetically project our values to the world. After all, what value could be more American than "no taxation without representation"? In the case of Iraq, conservatives will be happy to embarrass the

French and Russians, who supplied Hussein with most of his cash. If the Europeans complain about not getting their money back, the whole world will see the real reason behind their opposition to the war. The one problem is implementation. Odious debt is backed by powerful vested interests: the wealthy creditors who funded the dictators in the first place. To get around their inevitable opposition, Kremer and Jayachandran suggest that only future debt be declared odious. That way creditors will put their money elsewhere rather than stand up for an odious regime. Their strategy will work great for odious regimes that need to pressured (I nominate Zimbabwe for a test-run.), but won't do anything to help the Iraqi people get out of their desperate and undeserved situation.

Unfortunately, no wealthy nation seems eager to forgive odious debt, least of all in Iraq. Since the fall of Hussein's regime, Russia and France have predictably insisted that their loans be repaid while wistfully calling for Iraq to democratize and develop. Meanwhile, the Bush administration has treated Iraqi debt with its catch-all solution to red ink: Denial. Bush has yet to even include the cost of the occupation in his budget proposals, much less plan for Iraq's long-term development. The administration's original plan was to pay off the debt and fund reconstruction by selling Iraqi oil, but Iraq's infrastructure is so damaged that it will be years before significant oil revenues start to come in.

So are there any legitimate reasons for continuing to enforce odious debt? Some may worry about the consequences of letting the Iraqi people off the hook. If the world disowns Saddam's debt, won't every former dictatorship want their debt (much of it owned by Americans) declared odious? Do we really want to open such a can of worms? Absolutely. We should be ashamed that American dollars were used to prop up odious regimes. The victims of those regimes shouldn't owe us a dime.

Zachary Klughaupt is a third year law student. His column appears every third Friday.