Many developing countries are carrying debt incurred by rulers who borrowed without the people's consent and used the funds either to repress the people or for personal gain. A new approach is warranted to prevent dictators from running up debts, looting their countries, and passing on their debts to the population. What can be done to eliminate odious debt? In a recent study, we argued for the creation of an independent institution that could assess whether regimes are legitimate and declare any sovereign debt subsequently incurred by illegitimate ones odious and thus not the obligation of successor governments. If structured correctly, such an institution could restrict dictators' ability to loot, limit the debt burden of poor countries, reduce risk for banks, and lower interest rates for legitimate governments that borrow. This policy can be viewed as a form of economic sanction that no one would have an incentive to evade.
|Number of pages
|Finance and Development
|Published - 2002
All Science Journal Classification (ASJC) codes
- Geography, Planning and Development