NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Odious Debt

Michael Kremer, Seema Jayachandran

NBER Working Paper No. 8953
Issued in May 2002
NBER Program(s):   EFG   IFM

Some argue that sovereign debt incurred without the consent of the people and not for their benefit, such as that of apartheid South Africa, should be considered odious and not transferable to successor governments. We argue that an institution that truthfully announced whether regimes are odious could create an equilibrium in which successor governments suffer no reputational loss from failure to repay odious debt and hence creditors curtail odious lending. Equilibria with odious lending could be eliminated by amending creditor country laws to prevent seizure of assets for failure to repay odious debt and restricting foreign assistance to countries not repaying odious debt. Shutting down the borrowing capacity of illegitimate regimes can be viewed as a form of economic sanction and has two advantages over most sanctions: it helps rather than hurts the population, and it does not create incentives for evasion by third parties. However, an institution empowered to assess regimes might falsely term debt odious if it favored debtors, and if creditors anticipate this, they would not make loans to legitimate governments. An institution empowered only to declare future lending to a particular government odious would have greater incentives to judge truthfully. A similar approach could be used to reduce moral hazard associated with World Bank and IMF loans.

download in pdf format
   (325 K)

email paper

This paper is available as PDF (325 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8953

Published: Seema Jayachandran & Michael Kremer, 2006. "Odious Debt," American Economic Review, American Economic Association, vol. 96(1), pages 82-92, March. citation courtesy of

Users who downloaded this paper also downloaded these:
Arslanalp and Henry w9369 Debt Relief: What Do the Markets Think?
Shleifer w9493 Will the Sovereign Debt Market Survive?
Eichengreen w10497 Global Imbalances and the Lessons of Bretton Woods
Mitchener and Weidenmier w11472 Supersanctions and Sovereign Debt Repayment
Rodrik, Subramanian, and Trebbi w9305 Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us