Defining “Illegitimate Debt”: When Creditors Should Be Liable for Improper Loans
Defining “Illegitimate Debt”: When Creditors Should Be Liable for Improper Loans
This chapter addresses the questions: why should poor countries be expected to repay the debts imposed upon them by unelected and repressive governments? Who should shoulder the burden of repaying the billions of dollars stolen by the likes of Mobutu, Marcos, and Saddam Hussein? How can creditors expect South Africans to pay for loans taken out during the apartheid regime and at that time used as a means of oppression? It argues that loans to certain borrowers or for certain purposes are prima facie illegitimate. This category includes loans to dictators, odious debt (debt used for repression), and extortionate loans. Second, certain types of behavior by lenders can also make a loan illegitimate: usury, money laundering, and gross negligence in lending. When these conditions are met, responsibility for repayment cannot be properly placed on the borrower.
Keywords: debts, creditors, debtors, payment, loans, dictatorships, money laundering
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