My Crimean Summers and Ukraine's Odious Debts
Every elementary school summer I was shipped out of Leningrad on a two-day train journey to the Black Sea, where a succession of family members would make me eat tomatoes and roast in the sun for three months to store vitamins for the winter. A human conserve. My Soviet engineer parents would rent a room in someone's rickety dacha on the outskirts of Sevastopol--one rouble per bed, except for the high-end place with lace-trimmed pillowcases that went for one-fifty. The fellow to the right was our landlord, already chocolate-brown in early June, sleeping it off next to his sandy-brown boxer, when we were still fresh-from-the-north gray-green (photo courtesy dad). Sevastopol was a "closed" military city then, but to me, it was one happy, sleepy, dusty morning walk to the beach, trying to spy a poppy flower, sand, salt, sand, and sleepier afternoons under the sour cherry tree, trying to spy the landlady's grandson. Bleached, salty brown with a spot of red.
It is weird to think of my sleepy childhood as the latest "breakaway province," but there you have it. Which brings me to a genius phrase coined in 1927 by a Russian emigrant law scholar in Paris: Odious Debt. Contemplating the Bolsheviks and their lawless ways, Alexander Sack (photo courtesy of Sarah Ludington and Mitu Gulati) synthesized disparate doctrines that came before when he described debt tainted at inception--not because the debtor cannot pay--but because creditors knowingly lent to a government that oppressed its people. This is debt that should not be paid even if it could be.
In a separate series of posts at PIIE, I have suggested that Ukraine should not--even if it could--repay Russia's last-minute advance to prop up the Yanukovych government, and that the U.K. should make this debt unenforceable. The logic is Odious Debt, the method is not.
Some see Odious Debt as an established doctrine with considerable redemptive potential. Others see it as a mix of wishful thinking and bad policy. I do not think that the doctrine as defined to date is worth fighting for. It is narrow, cumbersome, and--perhaps most devastating--a safety valve to preserve and legitimate the corrupt and oppressive finance that escapes the odiousness tag.
Unlike the doctrine, the idea that illegitimate debt should not be paid seems immensely intuitive. It deserves a workable institutional home. Maybe two.
One home is transitional justice--audits and truth commissions that painstakingly wade through the borrowings of deposed governments. Truth commissions are morally and institutionally satisfying: they use legal process to sort the truly odious from the faintly smelly. If the commission is legitimate, so are its odiousness findings. We have not seen debt commissions much, not even for the bloodiest tyrants, perhaps because new governments usually need debt relief right away, and creditors are only happy to give it to them to avoid the inquiry and preempt the doctrine.
Another home is sanctions. Odious Debt as sanctions is not nearly as satisfying. Financial sanctions privilege major financial powers like the United Kingdom--much as humanitarian intervention is easier done by major military powers. The approach is self-limiting (maybe too self-limiting), since a major financial power will not be major for long if it picks and chooses debts to enforce every week. And it is far form clear that Yanukovych and his bonds are the worst of the lot, even though they sport some pretty outrageous contract terms designed to help Russia make a quick market exit and upset Ukraine's entire debt structure.
But as sanctions go, closing the courts to Yanukovych bonds and making them toxic in the markets is more practical and meaningful than most approaches on the table. Sadly for Ukraine, Russia, and Odious Debt, it is the least--and the most--that the West would do for now.