Eric
Tousaint’s study of the odious debt doctrine
by
Eric Toussaint
Part
4 - Sack turned a blind eye to bankers’ malpractice regarding bond
issue and rate-fixing
Sack was
fully aware of the circumstances under which bankers in London,
France, Germany and other major Western centres of finance issued
public treasury bonds, imposing draconian conditions on the States
asking for loans and manipulating the rates of those bonds.
Bankers’
abuse has been well documented. The conclusions of parliamentary
enquiries, whether in Great Britain, France or the United States,
were damning. Arbitration had proved necessary. Sack also knew all
about speculative stock-market dabbling of private institutions
holding public-debt bonds.
There were
numerous public debates on all these topics throughout the 19th
century, until the time when Sack wrote his book. In the run-up to
the Hague Peace Conference of 1907 (see section on US policy, below),
several participants, including the Argentine jurist and minister
Luis M. Drago, denounced creditors’ behaviour. Yet nowhere in his
work does Sack mention the possibility of nullifying a debt contract,
declaring the bonds invalid, in the case of proven abusive or
fraudulent behaviour on the part of creditors, usually banks. This is
evidence of Sack’s bias.
When I
discuss the criteria established by Sack to determine the odious
nature of certain debts and creditors’ responsibility, we shall see
that he envisaged creditors’ responsibility from the point of view
of their complicity with odious acts perpetrated by the regimes they
granted credit to. This is perfectly correct, but quite inadequate,
as Sack completely ignores creditors’ responsibility at the point
in time when they issue bonds on the financial markets – selling
bonds at a price far below their nominal value, exorbitant
commissions, very high real interest rates – and in the way they
“manage” bonds once issued, that is, speculating and manipulating
prices.
The
fraudulent, extortionate and dishonest practices of bankers when they
issue bonds should be firmly condemned and opposed, as should the
manipulations they resort to afterwards. Sack deliberately decided to
leave creditors a free hand in these matters.
This point
clearly indicates that Sack was not on the side of those defending
debtor States; his priority lay with the rights of private creditors.
Sack’s refusal to take into account cases where lenders generated
odious debts by imposing excessive demands on the borrowers testifies
to his political and ideological orientation in favour of
money-lenders.
It is all the more significant that the proposal to write off odious debts should be made by someone like Sack who was not predisposed to favouring debtors.
Despite his clear bias in favour of creditors, Sack considered that in exceptional cases debts may be written off. Sack believed that creditors should accept the cancellation of certain debts if it can be shown the government which contracted them intended to use them against the interests of the nation. The Russian jurist could not avoid pointing out that there is an important exception to the sacrosanct rule of continuity in debt repayment and a limit to private creditors’ rights: in certain circumstances, creditors must agree to the cancellation of their debt if it can be demonstrated that the debt is odious. He also accepts two fundamental points to which I shall return further on. Namely, that when there is a presumption of odious debt, it is incumbent upon the creditors to prove their good faith; and should they fail to do so, their acts may be considered as hostile to the nation.
However before we look at Sack’s definition of odious debt, there are other aspects of his position that I wish to touch upon, regarding the rights of creditors and of States in situations such as war.
It is all the more significant that the proposal to write off odious debts should be made by someone like Sack who was not predisposed to favouring debtors.
Despite his clear bias in favour of creditors, Sack considered that in exceptional cases debts may be written off. Sack believed that creditors should accept the cancellation of certain debts if it can be shown the government which contracted them intended to use them against the interests of the nation. The Russian jurist could not avoid pointing out that there is an important exception to the sacrosanct rule of continuity in debt repayment and a limit to private creditors’ rights: in certain circumstances, creditors must agree to the cancellation of their debt if it can be demonstrated that the debt is odious. He also accepts two fundamental points to which I shall return further on. Namely, that when there is a presumption of odious debt, it is incumbent upon the creditors to prove their good faith; and should they fail to do so, their acts may be considered as hostile to the nation.
However before we look at Sack’s definition of odious debt, there are other aspects of his position that I wish to touch upon, regarding the rights of creditors and of States in situations such as war.
Source
and references:
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