Report on Addressing Unsustainable and Illegitimate Debt (February 2003)

“Addressing Unsustainable and Illegitimate Debt—Strategic Options for Civil Society”

CCIC Boardroom – 3rd floor – 1 Nicholas Street, Ottawa, Ontario

February 26, 2003

Present: John Dillon (KAIROS); Joe Gunn (Canadian Conference of Catholic Bishops); Rusa Jeremic (KAIROS); Opa Kapijimpanga (African Forum and Network on Debt and Development); Ashfaq Khalfan (Centre for International Sustainable Development Law); Pauleen Lally (Sisters of Providence and KAIROS) Derek McKee (McGill Law); Kirsten Mercer (Primate’s World Development Fund); John Mihevc (KAIROS and Halifax Initiative); Njoki Njoroge Njehu (50 Years Is Enough Network); Robin Round (Halifax Initiative); Pat Steenberg (KAIROS); Rodney Schmidt (NSI); Bradley Thompson (Centre for International Sustainable Development Law); Brian Tomlinson (CCIC and Halifax Initiative); Salimah Valiani (KAIROS); Melissa MacLean (recording)

I.         Chair’s Welcome and Introductory Remarks  
A.        Welcome/Introductions  
B.        Introductory Remarks

Kirsten noted that we should start by framing the technical discussion on managing illegitimate and unsustainable debt in its moral/political/ethical context. At the heart of the issue is the question of power, of who controls the agenda. How we define the legitimacy of debts relates to the discussion of mechanisms to deal with it.

There have been three important developments on this issue over the past year.

  1. The AFRODAD discussion paper—Opa will share that with us today.
  2. June 2002 Norwegian church aid document by Joe Hanlan (from the UK). It distinguishes unacceptable from inappropriate loans and conditions, i.e. conditions that might be legitimate in one context but not in another. The onus is on the debtor to prove the case. This study advances the ethics of illegitimacy, with respect to some murkier legal concepts, such as usury, successor loans, fungibility and capital flight issues. The ethical case on repudiation in international law is also new.
  3. October 2002 Jubilee South discussion paper by Alejandro Bendaña

It builds on existing literature and follows the rough categories of the Canadian framework, using different words. It adds historical illegitimacy. It talks about the following bases of illegitimacy: 1 historical; 2 moral cost/hum rights; 3 contractual; 4 democracy/self-determination/sovereignty; 5 accounting i.e. related to interest rate fluctuations, etc.

The study outlines criteria for arbitration, relevant to the SDRM and FTAP discussion. Jubilee South doesn’t endorse FTAP because they feel it might legitimize debts which they see as void on their face, but they do outline 10 principles related to the arbitration issue. They are:

  1. a process independent of IFIs
  2. proactive
  3. assesses and addresses all forms of illegitimate and illegal debt
  4. subservient to domestic procedure
  5. should not have conditions attached (i.e. to debtor)
  6. sustainability defined in human and not accounting terms
  7. acts as a check on the power of creditors, not as a tool of further oppression
  8. incorporates popular perspectives
  9. campaigns for an arbitration mechanism should be balanced with other means of addressing the issue, such as repudiation—shouldn’t focus only on arbitration
  10. campaigns for arbitration should be careful not to undermine groups working on other mechanisms 

II         Presentation: “Proposals to Address Sovereign Debt—Technical Considerations and Political Context” – Robin Round

Robin began by noting that this Halifax Initiative discussion paper is a draft to be revised based on these discussions—keep it in confidence for now. Also, Sovereign Debt Restructuring Mechanism (SDRM) and FTAP are both moving targets. (The presentation is an overview of the paper which has been distributed.)

SDRM/FTAP context:
Debt management has been characterized by fragmented and inadequate attempts to restructure debt, making it increasingly unpayable. There has been urgency amongst creditors over the last couple of years due to recurrent financial crises, such as Argentina’s. Large and ineffective bail-outs have led to moral hazard concerns. There is pressure from the US to end consequence-free lending. There is also pressure on IMF coffers. There is also concern over minority  creditors’ claims against sovereigns—suing for full payment—“rogue creditors” /vulture funds. All this shows up the inadequacies of official efforts to build a “new financial architecture.”

SDRM was first proposed by Ann Kruger and subsequently revised; it has changed much  since but the goal remains orderly, rapid, predictable debt restructuring while protecting asset values and creditors’ rights. The focus on protecting asset values and creditors’ rights is key. The SDRM is modelled on US Chapter 11 corporate bankruptcy procedures, though with many differences.

Key elements of the SDRM include:

  • creditor protection
  • treats private sector debt only, not IMF or multilaterals; Paris Club refused to participate
  • statutory approach: a new legal entity, SDDRF, would be created by changes in IMF’s Articles of Agreement; not be voluntary but binds all creditors and requires changes in national legislation
  • IMF as gatekeeper (though this is now questionable); IMF would do debt sustainability analysis, structural adjustment conditionality, finance secretariat, approve panel selection, etc.

How it works:

  • debtor seeks out-of-court settlement through new SDRF
  • negotiation, not arbitration
  • involves powerful creditors and weak debtors
  • binding on all parties, even those who refuse to participate
  • collective action bond clauses in supporting role

The response to SDRM has been vocal and critical.

Private sector: does not support IMF SDRM proposal, which it calls “radical.”  Private sector wants a market-based approach through collective action bond clauses. The US support this approach, alone amongst the G7, and others are debating SDRM. Canada is taking the middle ground. Europe is pushing for less IMF involvement and more arbitration process.

Collective action bonds are useful but insufficient: they are not retroactive and most of the debt is preexisting; there are thousands of bond clauses out there, so it would be too much to deal with each, to co-ordinate across jurisdictions, a logistical nightmare; and they are voluntary.

The French have made the “Trichet” proposal for a Code of Good Conduct. It is designed to find middle ground between US and others. There are issues with this proposal related to legality, enforceability, and start up time. The Code of Good Conduct is a voluntary agreement between debtors and a qualified majority of creditors to negotiate restructuring in good faith. IMF officials see this as a starting point to try to find middle ground, but so far it remains fairly undeveloped, vague on the measures it would involved. It’s basically a political move to break deadlock with US.

Things we could consider supporting:

  • use of third party mediator, by definition more equitable
  • stay on payments
  • commitment to debtor’s financial situation being preserved and debt sustainability being restored quickly, i.e. a recognition of the crisis nature of the situations

Civil society’s response to SDRM started positive but has become negative with new iterations of the IMF proposal. Civil society tends to see it as a MIMIC, i.e., like HIPC for middle income countries. It weakens debtors and strengthens the IMF:

  • creditors hold all the cards
  • not fair and impartial
  • exempts Bank and other multilaterals as preferred creditors—this fragmented approach just “shuffles the deck chairs on the Titanic” –comprehensive approach to debt crisis is needed
  • requires structural adjustment conditionality
  • concedes to IMF the role of determining sustainable debt levels (big criticism of HIPC is that this level was set too high)
  • democratic decisionmaking is surrendered as IMF prescriptions aren’t negotiable
  • does not address the legitimacy of debt
  • no provisions to protect budgetary resources as in FTAP
  • expands IMF role through changes to Articles of Agreement
  • no public accountability or involvement

It is based on Chapter 9 insolvency procedures between municipal debtors and private sector. It’s about power and who holds it: FTAP tries to transform the existing unjust imbalance of power. The FTAP is about debtor protection—it recognizes that a nation is not a collection of assets.


  • involves impartial arbitration—neutral 3rd party forum selected by debtors and creditors
  • is legally binding through changes to bond contracts in New York and London
  • depends on waiving the sovereign immunity clause

Areas to be addressed with respect to the FTAP include:

  • legal housing—ad hoc or formal? Issue point up gaps in international financial governance
  • scope of debt to be addressed—Jubilee demands 100% cancellation for HIPCs, so there would be no need to include them in FTAP, but some are concerned about this. Is domestic debt included? How does that affect sovereignty?
  • illegitimate debt: who would determined that? What are the criteria? There is a lack of precedent in international law

Q: Why do we spend so much energy on a process which I suspect we already know is faulty—the IMF defined it, etc. Why can’t we break through, go beyond that? A: we are trying to break through. The official stuff provides a platform to advance our proposals more effectively because it’s on their agenda

What is Canada’s position? A: Canada appears supportive of SDRM in its current form, in part because they recognize the intense pressure from the US and are concerned we could end up with only collective action clauses. That’s why they haven’t supported the European proposal. ED for Canada’s gave “a bit of a dance” on Canada’s position on Tichet.  A: Manley was in Paris for G7 on the weekend. An official communiqué implies the Tichet proposal has made it to the table. In a key paragraph, market-based approach is still there, but it says that “as a complement we welcome work on a code of good conduct, etc.”

Q: It is not very clear where the US treasury stands on SDRM. This probably won’t go off the table because the process has moved along, so the US could dig in to it—but in a bad way. The Bush people have come out of the private sector—this is a worrying thing. But sometimes it can work in our favour when the US is so bad.

III.       PANEL

A.  “AFRODAD’s Call for a Fair and Transparent Arbitration Court for Debt” – Opa Kapijimpanga
Opa began by asserting that it is important to distinguish between LDC and middle income debt—it’s a matrix with different subsets. We need to do correct analysis for each group even if we get a composite in the end. There are different political implications for each.

Most LDC debt is official debt—bilateral and multilateral. The relationship of LDCs, and their debt, the nature of relationships between governments, between North and South, the power imbalance, is very important here. At one level it is a political problem, not a technical one. The divide between North and South is  serious in the LDC case. There are power imbalances, even with respect to “legitimate” debt. So our discussions are pitched at that level as well. The nature of the problem is structural, therefore it needs a structural solution.

If the bottom line were to put blame on the debtors then necessarily they’d have to take a more antagonistic position with respect to the North. So, do we tell African governments: we are being cheated? Or do we want to take a route based on economic justice and rights. We think that’s the way to go. And in order to do that we need to see where the injustice comes from.

Current court/legal mechanisms are not nice. If you kill someone, but get the best lawyer, you can still get away with it. That’s not justice. We need another mechanism. In other societies, the idea of arbitration makes sense, but perhaps it does not in Anglo Saxon history. In rural communities, if we have a disagreement, we go to Brian and say “What do you think we should do?” And the wise man with grey hair says who he thinks is right, and they have to be in harmony. But in Roman law you are the victim, so we take you to jail. We have to take arbitration seriously, philosophically and politically. On the debt problem, there is a divergence of views, so there is a dispute, but that doesn’t have to mean being very antagonistic, and fighting. But we need someone to arbitrate.

  1. Process vs. mechanism: there is a difference between FTAP and FTAM—process vs. mechanism. We believe first we need to establish a mechanism—a court. We collected 24 million signatures under Jubilee, but they were thrown out the window by these guys. We can’t let this go. We must find a way to work with this democracy of views. The Secretary General has made remarks on debt and has called for a debt arbitration mechanism. We should support that.
  2. Assigning responsibility: we know part of the debt problem comes from IMF policies since 1980. IMF policies have contributed, so the IMF must pay for what they’ve done.
  3. All the mechanisms so far have been designed by creditors to protect their interests. But we need more justice in a world where the poor can also be heard
  4. Illegitimate debt
  5. Criteria for debt relief until now only provides security to international institutions. But I think the IMF could go to hell and nothing would happen to Africa—it would just be one less devil on our hands. This is a disagreement between us and Northern civil society.

Arbitration is a process could be proceeded by other processes: negotiation; mediation; conciliation. In this whole political game, we don’t have good global governance. And without good global governance, some states are bullies and dominate others. The UN is important in this sense. It is a global governance instrument. Some say it is dominated by the US, but it’s something. So we need a court under the UN.

B.        “FTAP—Legal and Institutional Questions” – Ashfaq Khalfan
Ashfaq noted that the study is on the CISDL website. He began by saying he agreed with Opa: we do need new institutions. However, he disagreed on the “tribal elders thing.” It’s not just getting debtors and creditors to talk; we need concrete roles, and we shouldn’t forget that tribal elders are the richest in their community, and are men, all of that… so it’s questionable if that paradigm works.

The question of power imbalances: the laws as we know them are weighted to power or silent—which gives way to power. But there are legal institutions we can use because of their legitimacy. Internationally agreement on some of the concepts we’re using has weight in political negotiations. There are studies arguing that states bargain in the shadow of the law, that international law does have an impact on power imbalances.

Legal issues:

  • how to clarify legitimacy, and unsustainable debt. There is a core that has been agreed about illegitimate debt, especially about odious debt—it has to do with absence of consent or benefit to the population and creditors’ awareness of the situation. Ecological issues and wrong policy advice are two newer elements of illegitimate debt discussion. But in cases of odious debt there is a core that most can agree on and a court could judge.
  • unsustainable debt and human rights. At Monterrey, developing countries got a clause saying future debt sustainability analysis should be tied to the Millennium Development Goals. They are tied to the availability of resources, and there is disagreement over the obligation of the international community to these rights. In our paper we talk about core obligations (e.g. housing, primary health care, primary education, and common economic, social and cultural rights), stating these are obligations of all states, and are not progressive, i.e. they define an international minimum threshold all development policies should respect—including debt.

One way to address the problems of the SDRM is to go to other institutions.

  • International Court of Justice: It takes too long to decide individual cases, so could only only work between states, which would mean changing the statutes. Also, only about 60 states have submitted to the ICJ’s compulsory jurisdiction. But of the various bodies it’s the one with the most independent and impartial analysis. It couldn’t deal with individual cases but one statement saying there is a doctrine of illegitimate debt in international law would be helpful. With respect to odious debt, there are good arguments, and precedents. A promising route is domestic laws, e.g. corporate law, agency-principal law, responsibilities of boards to shareholders, etc., to place limitations on what governments can contract to. General principles of law can form the basis of international law, but one would need to have a strong case before going to the ICJ.
  • International Court for the Settlement of Investment Disputes: Debt could fall within its mandate but its whole approach has been to favour creditors, and safegaurd investment flows.
  • Human rights bodies, e.g. Committee on Social Economic and Cultural Rights, etc.: These are committees of independent experts, sometimes very activist and so sympathetic, but they don’t have power over the IMF or individual governments. But they could issue declarations and observations which could be politically damaging to these countries. Major creditor states are all members of the Committee, except the US. It report every five years. The Committee has a discussion day with NGOs before considering states’ reports. The reports are mainly on the domestic situation, with paragraph about aid, etc. The Committee has said there is a need for debt relief initiatives to safeguard these rights. The challenge would be to have the Committee saying to nations, why are you collecting such high levels of debt from, e.g. Haiti, Tanzania, etc. NGOs would have to go there. Now it is mostly groups interested in domestic issues.

All these institutions can help create pressure for an FTAP that would address unsustainable and illegitimate debt. Human rights bodies would only deal with unsustainable debt regarding human rights issues; others, such as the ICJ, could deal with both unsustainable and illegitimate debt. NGOs could go to these bodies and use the judgments to push the idea that to do this systemically requires an independent mechanism. Such a strategy would require significant mobilization. It would be best to request an advisor opinion, not applying to any one state. A lot of Jubilee groups have been thinking about this.

In terms of arbitral mechanisms, this requires prior consent of creditors, so only World Bank contracts would work. The benefit is it has a deadlock breaking mechanism. Most FTAP proposals refer to it. Each side appoints someone but you need a third person, and who appoints the third person? In World Bank contracts, the ICJ or Secretary General of the UN appoints, but there are also other models.

Domestic courts, mainly in NY and London: The problem is NGOs can’t afford lawyers. But it is being done; Bradley will speak about the South African case in New York.

C. Discussion
Even comparing the mechanisms seems to affirm the validity of debt, which I have a hard time with because it has been exploitation that has impoverished, or led to the situation of debt, however we want to characterize it. I realize that we have to do something, but we also have to have a principle of equalization—that you share the wealth around. So I’m very much in favour of pushing discussions of democratic global institutions, and a world income tax to equalize income. When we get caught up discussions of mechanisms and legality, we don’t go so far forward on the other track, on the system of global governance.

The AFRODAD paper notes the process before arbitration, regarding assessing illegitimate or odious debt. Is an arbitration board the right body to decide what is illegitimate debt, when 1 of 3 or 2 of 5 are creditor appointed? So we need to look at other processes for dealing with the cancellation of odious debt. The issues paper says there is a history of arbitrations being lengthy, costly, etc., when people can’t agree on what’s necessary for the process. If arbitrators are at loggerheads over whether the debt is truly odious or not, then the process would break down. Therefore, you need a prior process to deal with that question. It’s a two step process.

That’s why it shouldn’t be an ad hoc process. We need something like the ICJ—respected, independent, with lawyers, etc., not just the US should appoint its own arbiters. These questions would be answered by the nature of the court, if it is more like a UN body, or something else.

When you have independent judges, etc., it’s no longer an arbitration, that’s more of a court. One possibility is to say a panel should deal with emergency type situations, like insolvency, and make that subject to a determination of illegitimacy. So there would be two steps: one for emergencies when timing is everything, and then make a restructuring on that basis, and then make that pending determination by an independent court.

But we also know that there are arbitration courts on investment, on trade—it’s just that there isn’t one on debt, specifically. I think that’s key—to make one specifically for debt. Then devise the rules for it.

What about the optional protocols to UN treaties, the complaints mechanisms to the UN treaties, e.g. to the Covenant on Civil and Political Rights? There isn’t one on Social, Economic and Cultural Rights. I think there was something. In working on the right to water we came up with something related to women, in CEDAW (?). Is it possible to say, for example, that debt restricts the economic rights of women?

It’s feasible to some extent…but there’s an optional protocol for women only…there isn’t one for other  treaties… But it’s worth looking at. There’s a working group being established this April for an optional protocol to the Convention of Social, Economic and Cultural Rights. Under optional protocols, you normally have an individual or group complaining about their own particular context. And the decision is not binding, though it’s politically useful. So the question for the working groups now is whether there could be complaints about acts of another state—the current draft would say probably not. The current draft optional protocol glosses over that issue—it’s political, not wanting to scare people right away.

It is important to distinguish between LDCs and middle income countries if we’re talking about an arbitration process. But if odious and illegitimate debt is our starting point, then wouldn’t that be the lens through which we view the debt? The LDC vs. middle income distinction would come into play case by case but would not necessarily apply to illegitimate debt. What is the distinction in that case between LDCs and middle income countries?

IV.       Co-chairs summarize morning and introduce afternoon sessions – Brian Tomlinson
Our purpose was to get out some of the information on the various mechanisms we want to contemplate, and we did that quite well, on many of the issues, on SDRM and FTAM, from Robin. We explored in more detail how a FTAM might work, and some technical issues.

We discussed how we deal with illegitimate debt in relation to various approaches to mechanisms; is odious debt one that should be in an arbitration process or are there other legal mechanisms for that?

Unsustainable debt in the broadest sense of limiting human development objectives, is more complex. That’s an outstanding issue, especially with respect to middle income countries.

One of the problems in terms of conceptualization of the morning was that we tried to focus too narrowly on the mechanism itself and it quickly came out in Opa’s presentation and after that you can’t look at the mechanism outside the political context of highly unequal power relations. But raising raises questions about where the mechanism may or may not fit in a global strategy on debt cancellation but also more equitable delivery of human development throughout the world. So we moved into various layers of discussion about where the Jubilee process ended up, and looking forward to how we can recreate some energy to move us forward based on what has changed since 2000.

This afternoon we need to explore more systematically the degree to which we can take advantage of existing legal or political mechanisms, putting forward test cases or putting political pressure to reopen political debate on debt cancellation.

There is a sentiment that we need a global vision, in fact a global project, that would unify all these various aspects of the approach. I think that in developing that strategy we need to come back not only to intermediate steps but also, quickly if possible, to our perception of what is actually happening now on the SDRM proposal. There is a common sentiment perhaps that we should take a position opposed to this mechanism, that it shouldn’t go forward—but we need to test that more in the strategy session this afternoon.

V.         PANEL: Addressing Illegitimate Debt   A.        “Case Study – Argentina” – John Dillon
John began by remarking that an irony about the Argentina case is that Ann Kruger and even private sector proponents of collective action clauses give Argentina as their motivation and then say in the next breath that it wouldn’t apply to Argentina.

Amidst the ferment starting December 2001, one president who lasted 6 days in government, Rodriguez Saa, advocated default. It was clear it wasn’t repudiation, and he document tabled promised to renegotiate after one year. After that year, things began to heat up with court cases by associations of creditors saying it’s time to pay. They said that in the intervening year, due to devaluation, Argentina has had an export surplus and therefore there is foreign exchange in the central bank to pay.

In the absence of a mechanism to deal with this, the government of Argentina have hired a French private firm to be their agent, paying them $190,000 per month, to advise them and verify the bonds held by various creditors. So there’s no question of looking at the legitimacy of the debt. The private firm is playing a first role towards a negotiation. The IMF has pushed them to do this as a condition of the small IMF rollover loan. They’re looking for a 70% nominal write-off. The response of our allies in the Jubilee Movement in Argentina is that we shouldn’t try to reprogramme what is in first place illegitimate debt. Such reprogramming turned out not to be such a good deal in the past.

Meanwhile, there is a legal case, the Omos case. Omos was a journalist, a private citizen who under the military initiated a case in court on the illegitimate of debt collected between ’76 and ’83 by the military government. Omos had passed on by July 2002 when the judgement came down, but his son carried on the case. The judgement said that the process by which the Argentine debt was accumulated did not have economic, financial or administrative justification and that there were truly illegal acts committed. To sum up: it fit the definition of odious debt in the CISDL study: tyrannical regime, no benefit of the loans to the people, and creditors did know what was going on. The judge also slammed the IMF for its role in advising the government through the period of the dictatorship, saying these policies were also responsible for the build-up of debt. The judge also said that because of the statute of limitations, no one could be held criminally responsible.

Since, Alejandro Omos (younger) has started another court case, alleging that after the initial debt was rolled over most of the new credits taken out by the government, including from the Bank and the IMF, were just to refinance a debt already declared illicit. The case says the management of the Argentine debt was not done by national authorities but by a consortium of banks, including the Royal Bank of Canada, deciding amounts of debt, how to handle it, etc., under IMF, WB and IDB blessing. Also that official investigation by the Argentine central bank in 1988 might have established the illegality of the debt but was shelved on orders from high authorities.

Meanwhile, in the streets, the people who overthrew the government in December 2001 are still mobilizing—and they have a repudiation position that is not bothered with the fine legal points. These people have an immense distrust of political elites. Opinion polls say 75% want a definitive break with the IMF.

Our allies, specifically Diálogo 2000, the Jubilee South branch in Argentina, say we’ve already paid the debt many times over and the people of the North owe the south a larger ecological and social debt. We shouldn’t renegotiate what we don’t owe as that legitimizes it. They are bringing out data from previous renegotiations—70 % sounds like a lot, but under Brady, there was a 50% write-off, but with interest increases it was diminished, and there were also political cost due to structural adjustment and privatization conditions.

Linked with the Argentina movement, in Porto Alegre, last year, there was a people’s tribunal on debt. The judgement found the debt illegitimate, and the recommendations of jury in that tribunal can be read as an action programme:

  1. call for solidarity with repudiation and cancellation
  2. independent audits of debts of all southern countries, either by states, or as in Brazil, a citizens’ audit
  3. support for restitution of riches extracted
  4. repayment and reparations for ecological debt
  5. call for consultative opinion from the ICJ
  6. accompaniment of processes seeking to create sustainable societies

The proposal for an ad hoc process was picked up in Argentina by the ARI party representative, who proposed a bill in Congress to oblige the government to hold a plebiscite on entering arbitration, with an ad hoc process which itself would judge the legitimacy of the debt. That bill went nowhere in congress.

Meanwhile, in the presidential election campaign there is surprisingly little on debt. The presidential candidate that would seem like the candidate of the left, Alisa Carrillo, has backed off her comments and is talking about renegotiation over the very long term. The Peronist candidate is the one talking about the legitimacy of the external debt

The human effect: 57% of the population is now living in poverty. Joseph Stiglitz and George Soros both say the IMF wanted to punish Argentina and that’s why they offered nothing like a bailout, just demand after demand over this year—they don’t like the precedent set by default. But the people we deal with, they’re building a new society from below, taking over factories, using the barter system, etc. They know they can’t ignore the debt issue forever, but it’s not at centre of their activism right now. 

B.        “Case Study: South Africa” – Bradley Thompson
Bradley gave an overview of the “Kulumani et al and Barclays National Bank et al.” case filed in eastern district of NY in November 2002. This case relates to debts incurred by the apartheid government of South Africa, and involves corporations and banks—some European, American, UK. It is filed under the Alien Torts Claim Act in the US—because the claim is that there was a violation of the laws of nations, therefore they can be heard.

A tort is the harming of an individual (or corporation).

Kulumani is a not-for-profit community organization. In addition there are 167 individuals listed in the class, who are saying they’ve been wronged by these debts, and have suffered damage as a result of them. The damage involves basic crimes against humanity—torture, etc.So this class needs to make out the claim that they’ve suffered some sort of damage from this debt.

This is different from an odious debt claim, which isn’t individual—it’s a state saying that somehow the debt is invalid and therefore doesn’t have to be repaid. In this case, if they win, the class of individuals gets the damages they suffered, which might be completely disjointed from the size of the debt…so this is an interesting option because it compensates individuals for harm suffered and acknowledges the fact that it is individuals that suffer, not the abstract entity of the nation state.

In the case they say that the named banks and companies are liable for the harm committed—because international and domestic law recognizes the liability of principals (i.e. the regime that committed the harm), but also the liability of those who aid and abet in the harm—that’s how the creditors are tied in. That’s legally going to be a challenge, since lending appears to be a very benign activity. The doctrine of odious debt does acknowledges there has to be knowledge on the part of the creditor.

In the brief, they mention the “high risk of harm either known or so obvious that it should have been known;” “conscious disregard of known dangers;” “deliberate indifference to substantial risk to population..”

If lending constitutes a tort, then it’s illegitimate and, also in fact, odious—so these two claims could run parallel—the state could also claim we don’t need to repay this, while individuals claim right to compensation

The remedy claimed is declaration of the violation of international law, plus compensatory and punitive damages. That is the distinctive feature of going about a claim in this way instead of an odious debt claim—in that damages actually take into account the harm done. Another difference is that this is a cause of action, in other words, if I’ve been harmed, then I can go to a court and sue. It is a legal remedy, not arbitration. So it’s proactive. With an odious debt claim, you’d just get a declaratory judgment saying “this is bad” which might be a tool to take to creditors, but otherwise a state would not benefit, unless the creditor was trying to sue for debt payment—it would then be a defense, not a proactive strategy.

C.        Discussion
Q. I thought that in case of US and Costa Rica that the debt was repudiated on the grounds of being odious, not because they were being sued for payment. And that was arbitration. And aren’t the creditors always asking for payment? A: Not in a court of law.

Q. We need to look at procedure and see if there’s a way that you can say you’re being harmed even if you’re not being sued.

Q: What is the timeline for this case? A: It was filed in November, and isn’t in court yet. It will take 1-3 years, just to get out of the district court. They have to make out the claim, and it has to be accepted as actionable, that it falls under the Alien Torts Act.

Q: There are 167 people, but that’s is just symbolic. Are they looking for remedy for everyone? A: No, they can only compensate the plaintiffs—it is largely symbolic.

Q: Are there relevant precedents under domestic law? A: It arises in corporations, because directors can bind shareholders. That’s a strong area for research, to find a legally binding odious debt doctrine internationally. Bradley: That has to do with someone acting as someone’s agent, without having the authority, you’re not bound in theory to those debts. Some foreign constitutions, especially in Latin America, actually say the government can’t bind the state without the authority of parliament or some other authority.

Q: What is a vulture funds?
A: A fund whose entire business is to buy debt that banks hold at a fraction of the price because the banks want to get out. So, Citibank might sell Argentine debt to a vulture fund, who would buy it at a highly reduced rate, and would then hold documents saying Argentina owes them the full amount.

Q: A case like this isn’t going to change anything…is the value that it sets a precedent, or what? Because it seems very individual. How does it advance odious debt doctrine, or towards arbitration, or structural causes?
A: Declaring one debt odious doesn’t fix the structural issue either. But it addresses the people who actually suffer—it says something symbolically.

Q: Is there a way in a ruling on a class action suit such as this one, that the ruling could make an allocation not going directly to the victims, e.g. in the reparations movement in US around slavery, some of the calls are for reparations to be made through institutions.
A: They could set up a trust fund. A class can be as large as you want
A: In this case, the people are a support group that came out during the Truth and Reconciliation process, who said the process was a farce and didn’t give the justice that was promised. It was quite controversial in South Africa because it violated the sanctity of the TRC process—if you participated, then you weren’t supposed to be sued, and you got absolution. But a number of people felt it wasn’t honest. The TRC didn’t include corporations. So this is a victim support group of people that had been tortured, or had family members killed, etc.

Q: Do you think they have a good case? A: Yes, but lending is so benign, even if on some level we could dispute if lending excessively is less benign, but on some level it isn’t criminal. It’s partly strong because it’s South Africa, and if you didn’t know it was an apartheid regime, then there was something wrong with you.
A: Lending may seem benign, but as the Norwegian church aid study points out, fungibility of money means even if money is lent for a hospital, it frees state money for arms, etc. And, if you provide money to the state, and the state’s mandate is to oppress a majority of citizens, then I think there is a case.

Q: How can a judge determine exactly what money has been spent for—there are other governments in the world, e.g., who are known human rights violators in one field, e.g. Cuba, which is very good on social and economic rights but less good on civil and political—so how could they draw the line?
A: Yes, there is a tracing issue, we recommend that you hire an accounting firm.
A: The South African Debt and Reparations Campaign put this case as a tactic within a broader campaign. They’re not trying to compensate each individual, it’s a principle. In Brazil, the 1998 Constitution calls for an audit of Brazil’s debt. The government hasn’t done it, but the Jubilee campaign is doing the citizen’s audit meantime, to the extent that they can go to the archives and get information on how the debt was contracted. They’ve constructed a grid, showing how much appears to have gone to military, to interest, etc. As much just publicity as anything, but if they could get the Brazilian government to do what the constitution calls for, then the question arises, would they take that to the ICJ after having established internally that most of the debt was illegitimate?
A: The Kulumani support group in the South African case are looking for reconstruction of communities, etc.—it isn’t on their individual behalf. They felt the lawsuit was a last resort as they had tried to seek justice in other ways.

Q: One of the lawyers prosecuted the holocaust victims case. Is that case seen as a precedent?
A: It’s a big class action law firm so it’s no accident they’re doing it. No, I don’t think they’re trying to draw parallels between the cases.
A: The firm is taking its fee out of the damages.
A: In different ways, both the street and debt activists, the researchers, are moving past the debt question per se, making their statements on larger questions of economic development, capitalist forms of development. So even as a tactic, it’s making a much larger comment, on the structural level. In that sense it becomes an indirect attack on the legitimacy of, e.g. IFIs, or the banking industry… so for our strategy session, that kind of reformulation that you see in the South must be part of how we take a stand on other issues.
A: The case would set a precedent—it would force corporate lawyers to check these things out beforehand. It’s not just about reparations.

VI        Strategy Session
A strategy discussion was held that explored avenues to promote the FTAP and mainstream the issue of the illegitimacy of debt.