Innocently Indebted?

Is it immoral to be in debt? When can debt be odious? Hendrik Simon discusses these questions with Edward Jones Corredera, author of Odious Debt, a genealogy of the morality of indebtedness in international law.

Dear Ed, thank you for talking to us again following our conversation with Mark Somos and you on Grotius and the politics of reception, welcome back! Your book “Odious Debt” deals with the(im)morality of debt in international law. To what extent can debt be immoral? What particularly interested you in this topic?

Thanks, Hendrik. Great to be chatting to you again. I first became interested in the morality of debt during the 2008 Great Financial Crisis. I was surprised by how cultural readings of insolvency and monetary responsibility shaped global perceptions of Spain, where I was born and raised; one might recall how the acronym PIGS (Portugal, Italy, Greece, Spain) took off to mock the mismanagement of these economies.

Can law or economics resolve, or set aside, cultural differences? Debt means different things indifferent languages. Part of the challenge of talking about the casuistry of debt remains a linguistic and a cultural one. This might seem like an academic observation, but the more I researched the topic the more I thought that while law and economics can flatten linguistic differences in imposing solutions to credit crises or debt disputes, cultural readings of debt remain surprisingly sticky. Whether debt is moral or immoral often depends on our cultural understandings of complex issues like guilt, blame, responsibility, and money. One can of course be essentialising about these things: but cultures evolve, they are mutable and flexible. The problem comes when two or more cultures with different readings of debt have to resolve a dispute: can international law resolve, or just sidestep, these differences?

So, what exactly are “odious debts,” as the title of your book suggests?

Odious debts are debts incurred by tyrannical regimes or for tyrannical ends without the consent or the wellbeing of the people in mind. The term sheds an intense spotlight on the fact that debts are political, constitutional, and not just economic matters: what constitutes tyranny or consent are matters of intense political debate. This was directly reflected in the way that Latin American international law emphasised the need for respect constitutional reform in the settlement of debt disputes while American jurists emphasised instead the sanctity of the commercial contract. Indeed, the constitutional and legal resolution of the morality of debts played such a big role in the making of Latin America that I turned it into a prism through which to study its history, from the Spanish conquest of the Americas to the First World War.

As you show, the historiography of odious debt traditionally begins in Paris, with a Russian lawyer, Alexander Nahum Sack, in 1927. What was Alexander Nahum Sack’s definition of “odious debt”?

Sack’s brilliant Les effets des transformations des Les Effets des Transformations des Etats sur Leurs Dettes Publiques et Autres Obligations Financières, is rarely read these days, and it features asophisticated analysis of the constitutional nature of the national debt. I think it is also important to frame his book in the broader context of debts triggered by the First World War on the morality of debt in relation to Germany: note that Marcel Mauss’ ideas on the gift exchange in Essai Sur Le Don (The Gift), and John Maynard Keynes’ views on reparations, emerged in the same context, and remain influential in our politics and in the study of anthropology and economics.

In his book, Sack explained that, for a debt to be considered odious a government would have to prove, and an international tribunal would have to recognise, the following facts: first, that the purposes behind the negotiation of the debt by a past government had been odious and clearly against the interest of the population of part of or the entirety of the territory. Secondly, it would have to demonstrate that debtors had been aware of the projected odious uses of the debts. Once these criteria had been met, it remained incumbent on the lenders to show that the profits producedf rom these debts had not been used for odious ends that could harm part of or the totality of the population of the state.

In trying to illustrate his point with historical examples, Sack mentioned a number of European case studies, but he also alluded to a number of instances in Latin America when this problem had presented itself. I concluded that, in citing these examples, he had caught the tail end of a much larger Latin American history, one which deserved a history of its own.

As you show in your book, there had already been disputes about odious debts for centuries before Sack, especially in Latin America. You refer to lawyers such as Andrés Bello, Simón Bolívar,Lorenzo de Zavala, Manuel Payno, Juan Bautista Alberdi, Ezequiel Rojas, Carlos Calvo, and Luis María Drago. In this respect, your book is an exciting new approach to telling a history of the moral economy of the Hispanic world from the 16th to the 20th century (p. 7). To what extent were debts central to the making of Latin America?

Before liberalism there was liberality. Liberality consisted in the princely capacity to distribute favour and punishment on the basis of equity. The question of what one was owed, understood broadly,was a cornerstone of this political system: corruption was all the more of a moral affront to this model because it implied the inequitable distribution of resources. Debt, in this constitutional context, was nothing more than another kind of duty. But, slowly, as European empires grew larger and the political stability of the Spanish Empire came to depend on monetary credit and debt, the two definitions, the moral and the material, came into conflict: was debt then a duty that responded to a Catholic reading of the common good or was debt a contract that had to be respected above all, including the sacrifice of the needs of the people?

In this context, debt and duty were central to the construction of Latin America. Nobody was more aware of this than the founding fathers of Latin American states and the founders of Latin American international law. The first thing that Latin American revolutionaries set out to do, in writing their histories of their revolution, was to establish what they owed the Spanish Empire. This had practical implications: establishing when the Spanish Empire had ceased to be a legitimate government (or indeed, if it ever had been legitimate) had a direct impact on the types of liabilities, laws, and territorial borders that Latin American constitutions would deem lawful.

Odious Debt shows how these debates informed the constitutional order of Latin America. It then focuses on how intervention and foreign debts impelled Latin American officials to develop more robust approaches to international law. As nations went through civil wars, money became scarce, and debts were signed before the means to repay them had been established, foreign powers often used the constitutional ambivalence created by these conflicts to their advantage: for instance, some powers claimed that the terms negotiated with a tyrant that had been deposed, and whose rule had been deemed illegitimate, were still binding. Revolutionary governments, in turn, wanted to demonstrate their solvency by, in fact, paying the debts incurred by their previous government, as ameans to shore up financial investment in a recently war-torn nation. After a century of interventions, the Argentine Foreign Minister Luis Maria Drago would ask: does intervention not merely make it harder for a nation which is investing its borrowed funds in the building of roads and schools to repay and reconstruct the state?

You are interested in longue durée and, in particular, global historical perspectives. In each chapter, you recount the debates in Mexico, Colombia, and Argentina. What similarities and differences do they share in the discourse history of odious debts? And what are central momentsor turning points in your genealogy of odious debts?

Each of these countries responded to their imperial pasts very differently: Mexico, as the oldest and wealthiest viceroyalty, took the question of whether it owed its faith and its language to Spain, and what this meant for its identity, very seriously – some radical authors even tried to suggest that Catholicism had reached Mexico before the conquistadors set foot in the Americas. Mexican officials repeatedly offered to pay Spain’s debts, and in its constitution and in later diplomatic settlements were ready to assume greater responsibilities than their Latin American peers for these colonial debts. Colombia, under Simón Bolívar’s leadership, went a different way: it persecuted Spaniards in what became known as the “War to the Death” and sought to repudiate all colonial debts.

The stories of the three nations converged, however, towards the middle of the century, when foreign interventions by the US and European powers encouraged Latin American nations tore consider their constitutions, their alliances, and their international law. A significant moment in this history was the French-led invasion of Mexico, the toppling of its government, and the imposition, with the help of Mexican conservatives, of a Habsburg archduke as Emperor of Mexico. After Benito Juárez and his administration executed the Emperor Maximilian I, the emperor’s debts, signed without the consent of the Mexican people, and their legality, remained a matter of intense debate. This European intervention was so outrageous that the little-known Juárez Doctrine emerged there from: payment of any and all states that had supported Maximilian’s regime would besuspended and renegotiated, and Mexico would seek to extract economic benefits, rather than international justice, from new diplomatic terms.

Debt was long used as a justification for violence. You emphasize the connection between debt and justification of war. A central justification for US violence in Latin America was the Monroe Doctrine. Latin American lawyers, however, did not take a clear stance on the doctrine; some even defended it. Why?

This is a great question: I am looking forward to the publication of the volume you and others are editing on the Monroe Doctrine! Latin American jurists had diverging views on the Monroe Doctrine.
Juan Bautista Alberdi famously quipped that those Americans who preached non-interventionism were now the owners of half of Mexico and claimed the Doctrine was no different to the Doctrine of Discovery. Carlos Calvo initially condemned American interventions in Latin America, praising Napoleon III’s imperial model instead, but later changed course and endorsed the Monroe Doctrineas a shield for Latin America.

I think it’s important to situate these views historically: in the 1820s and 1830s, many Latin Americans did actually hope that the US would be a force for good, and a protector against European imperialism. With the Texas annexation and the growth of American wars with Mexico, this trend, broadly speaking, changed direction: it was harder to depict America as a defender of non-intervention there after. The US also used the term sparingly: as Jay Sexton once noted, Lincoln, for instance, was very careful not to use the term to avoid committing itself to any particular course of action in Latin America.

Latin American lawyers also grappled with the supposed father of modern international law and one of the main authors of the just war-tradition: Hugo Grotius. As I mentioned earlier, Grotius was the subject of another book you were involved in, which we have also discussed in this interview series. What is the connection here between Grotius’s theory of just war and Latin American approaches to debt?

Indeed, in the book I posit that a central tension in Latin American and American disputes over debt was over the perceived purpose of this debt: was the point of a debt for it to be repaid or was it for it to fulfil the uses it can provide for a community? In Latin American diplomatic debt disputes, the sanctity of contract in the just war tradition crashed against the sanctity of debt. Henry Maine, Frederic William Maitland and, more recently, Craig Muldrew, have shown how anglophone visions of the nature of debt changed in the making of the modern world, from status to contract. In my book, I argue that this shift did not take place in the same way in Latin America. When anglophone powers sought to resolve debt disputes with Latin American nations, they often tried to enforce their own conception of debt. Latin American jurists often defended statist positions: it was up to the sovereign state to decide what a legitimate debt was. Ironically, while the US has traditionally not accepted other states, particularly Latin American nations, taking up this position, it has frequently taken it up in negotiations with other powers.

The Drago-Porter Convention of 1907 prohibited the military collection of debts. To what extent is this a central turning point for you, or rather an expression of longer debates?

I find Drago, as a figure and a thinker, more important than the convention which carries his name: we desperately need a biography of the man, and I would like to encourage other scholars to study his writings. Drago was a deeply original thinker, and a well-known criminologist; in Argentinian history, he is sometimes studied for his views on divorce law. I think we should treat Drago as aserious and an important thinker who was able to articulate his views on the morality of debt in away that was clear to an anglophone audience, and which in fact presented a hyper-capitalist interpretation of debt to his readers: if states, as Latin American representatives were frequently told, are meant to be like corporations, and have the same fiscal responsibility as a business or acompany – why then was there no global bankruptcy mechanism for insolvent states? Why not create a universal set of norms on sovereign debt and cross-border insolvency? To this day, these norms remain unresolved and debt disputes are a heavily contested area of international law. I would encourage everyone to follow Karina Patricio Lima’s excellent research on the contemporary dimensions of the problem.

At the end of your book, you write that “China’s influence in Latin America generates a broader question for policy makers and international lawyers: what type of obligations and responsibilities ought to be at the core of global relations?” (p. 203) To pick up on this question: what can we learn from your history with regard to the current world of Trump’s dealmaking and US-Chinese rivalries in Latin America and around the globe?

Geopolitics have changed quite drastically since I published Odious Debt. I think we are living in a different economic order altogether: Francis Fukuyama’s forgotten warning, in The End of History, on the return of thymos, the desire to be recognised, the rise of anger, resentment, and revenge: we need to revisit these insights once again.

We are living through the rise of the economy of anger: anger, driven by revenge, has its own compensatory logic. Peter Sloterdijk has spoken of “banked anger”: the idea that political interests can “bank” anger and deploy it towards various ends. In this context, debt is something mediated by revenge: a debt is owed to those states that have, in their self-perception, been wronged or abused. These are symbolic debts that can not be understood through money, but which often include financial burdens and sacrifices. Tributary debts, and debts of gratitude; debts, in short, that belongto a moral economy which many have forgotten are increasingly shaping the global economy and US attitudes towards international law. Samuel Moyn has written about the need to pay more attentionto the language of obligations and demystify the language of rights: as rights rapidly fade, we now urgently need to familiarise ourselves with histories of the hardened logic of obligations. As war returns to the fore of global politics, the question of what we, as citizens of nations at war, owe one another is the most pressing question of our age.