On September 19, 2018, the Financial Times reported that a court case between Ukraine and Russia over a US$3 billion loan was imminent.

The lawsuit stems from Ukraine’s refusal to repay the sum borrowed in 2013 from Russia, arguing that the debt is “odious”. This argument, already put forward in 2015 by the country, refers to the alleged complicity of Viktor Yanukovych’s government with Vladimir Putin’s Russia. Let’s not forget that Viktor Yanukovych was deposed in 2014 following the so-called mass movement of Maidan Square and left the country to settle in Russia. The Financial Times reassures its readers that the London court is unlikely to refer to the odious debt doctrine when deciding the case. The reason the dispute was brought to the London court is because the debts were incurred under UK law and the plaintiff and defendant had agreed that the UK courts would decide any dispute.

Moreover, the reference to the doctrine of “odious debt” would be politically and morally beneficial for Ukraine, since it would be incumbent on Russia to justify its actions during the Ukrainian civil war.

Beyond the more or less interested, even opportunistic, use of this concept by the Ukrainian government, the challenge is topical since it puts the doctrine of the “odious debt” back on the agenda. This doctrine, developed by the jurist Alexander Nahum Sack, establishes that the “odious” character of a sovereign debt
Sovereign debt
Public debt or debt guaranteed by the government.
will be determined by two elements:

  1. that the purpose which the former government wished to cover by the debt in question was odious and manifestly contrary to the interests of the population of all or part of the territory, and
  2. that the creditors, at the time the loan was issued, were aware of its heinous purpose. [1]

Given the nature of the loan – granted by Russia to Ukraine – at the heart of the dispute, it could clearly be an “odious” debt

Indeed, given the nature of the loan – granted by Russia to Ukraine – at the heart of the dispute, it could clearly be an “odious” debt since the loan would have been a Russian reward for the loyalty of Yanukovych, and after his overthrow, Moscow would be accused of interference and therefore of direct participation in the Ukrainian civil war.

It is possible to extend this argument to other debts contracted by this country, which makes the claim of the Ukrainian government a real issue. It is for this reason that the matter of Ukrainian debt to Russia is also a subject for the Financial Times and probably in the eyes of the court in London. The opinions expressed by this newspaper, whose editorials are among the leading voices representing the interests of big business, are significant. There is a fundamental contradiction here, linked to the very history of the doctrine of the “odious debt”. Alexander Sack’s approach, which became a reference for the formulation of the “odious debt” doctrine, had a completely different objective: to limit the number of repudiations of sovereign debts in order to guarantee maximum recoveries by private creditors. Moreover, many cases of repudiation had already occurred at the time of the formulation of this doctrine without Sack having taken them all into account. Its aim was therefore not to justify, and even less to encourage, the repudiation of sovereign debt by countries, but to anticipate the vagaries of a sovereign debt market, often politically determined, in order to strengthen it. His approach, however, set the framework for analysis and debate around repudiations and their potential relevance.

A debate that often leads to contradictory situations: In 2003, a month after the invasion of Iraq by the coalition made up of the United States, Great Britain and Australia, the United States declared that they considered the debt contracted by Saddam Hussein’s regime to be “odious. According to her, it was essential to repudiate the debt as it would constitute an illegitimate burden for the creation of a democratic regime in the country. The Financial Times and creditor countries expressed their doubts at the time, in particular because of the dangerous precedent that this odious IOU could have. In reality, the United States saw this debt (and the need to repay it to creditors, notably France, Germany and Russia) above all as an obstacle to the development of their business in Iraq. [2]. The negotiations resulted in the cancellation of 80% of the debt by the betting club
betting club
This group of state lenders was founded in 1956 and specializes in handling cases of non-payment by developing countries.

in November 2004. The world Bank
world Bank

The World Bank was founded within the framework of the new international monetary system set up in Bretton Woods in 1944. Its capital is made up of contributions from member states and loans on the international money markets. It has funded public and private projects in Third World and Eastern European countries.

It is made up of several closely associated institutions, including:

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which grants loans in productive sectors such as agriculture or energy;

2. The International Development Association (IDA, 159 members in 1997), which grants long-term loans (35-40 years) to the least developed countries at very low interest rates (1%);

3. The International Finance Corporation (IFC), which provides both loan and equity financing to business enterprises in developing countries.

As Third World debt worsens, the World Bank (along with the IMF) tends to adopt a macroeconomic perspective. For example, it applies adjustment policies intended to balance the payments of heavily indebted countries. The World Bank advises countries undergoing IMF therapy on issues such as reducing budget deficits, rounding up savings, bringing foreign investors within their borders, or freedom of prices and exchange rates.

followed suit, as did other creditors. In the end, the conditions were met for the appropriation of the main Iraqi markets by American private capital. The Iraqi example shows that the strategies of capital to widen its base of accumulation do not only concern the mechanism of increasing the debt but sometimes also its partial cancellation (which is different from a repudiation).

The dispute between Ukraine and Russia reveals a contradiction similar to that of Sack’s theorizing. Along with announcements of repudiation of debt to Russia, the new Ukrainian government contracted loans from the IMF
International Monetary Fund

Together with the World Bank, the IMF was founded on the day the Bretton Woods agreements were signed. Its first mission was to support the new standard exchange rate system.

When the Bretton Woods fixed rate system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman of world capital: it acts as policeman when it applies its structural adjustment policies and as a firefighter when he intervenes. to help governments at risk of not repaying their debt.

As with the World Bank, a weighted voting system works: according to the amount paid as contribution by each member state. 85% of the votes are needed to modify the IMF Charter (meaning that the USA with 17.68% of the votes has a de facto right of veto on any change).

The institution is dominated by five countries: the United States (16.74%), Japan (6.23%), Germany (5.81%), France (4.29%) and the Kingdom United (4.29%) .
The other 183 member countries are divided into country-led groups. The most important (6.57% of the vote) is led by Belgium. The smallest group of countries (1.55% of the vote) is led by Gabon and includes African countries.

http://imf.org, totaling $17.3 billion. Prime Minister at the time, Arseny Yatsenyuk, supported by billionaire Petro Poroshenko, the new Ukrainian president, insisted on the inescapable nature of this loan [“The government will meet all the conditions set by the IMF, because we have no other choice,” Yatsenyuk said during a meeting with members of the European Business Association (EBA
European Banking Authority

The body charged with supervising the European banking system and, along with two other authorities, the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), form part of the European System of Financial Supervision.

EBA : https://www.esma.europa.eu/
). “Ukraine vows to meet IMF loan conditions”, Xinhua, March 3, 2014]. In a context where war expenditure continued to increase due to the conflict in the east of the country, the IMF loan also resulted in the application of heavy Structural adjustment
Structural adjustment
Economic policies imposed by the IMF in exchange for new loans or rescheduling of old loans.

Structural adjustment policies were applied in the early 1980s to qualify countries for new loans or debt rescheduling by the IMF and World Bank. The type of adjustment requested aims to ensure that the country can once again service its external debt. Structural adjustment generally combines the following elements: devaluation of the national currency (to lower the prices of exported goods and attract hard currencies), increase in interest rates (to attract international capital), reduction of public expenditure ( ‘rationalization’ of public service personnel, reduction of budgets for education and the health sector, etc.), massive privatizations, reduction of public subsidies to certain companies or products, wage freeze (to avoid inflation as a consequence of deflation).These SAPs not only substantially contributed to rising debt levels in the affected countries, they simultaneously led to higher prices (due to a high VAT rate and free market prices) and a dramatic fall in the incomes of local populations (as a result of rising unemployment and the dismantling of public services, among other factors). tors).

IMF: http://www.worldbank.org/ plans that have made the Ukrainian population more precarious. In this sense, it would be perfectly legitimate for the Ukrainian people to take up the issue and demand that the IMF loan be repudiated in the same way as the repudiation of the debt to Russia was envisaged. A repudiation which could be justified by this same “odious character”, the two conditions of application of the doctrine being met.

This perspective of the different components of the Ukrainian debt makes it possible to better understand the point of view of the Financial Times, when it wrote in 2015 “Ukraine is taking an ‘odious’ path to default”. For this financial daily, the worst possible scenario in this dispute would be the repudiation of Ukraine’s debt to Russia as “odious”. The precedent this would set in terms of case law would be terrible for creditors everywhere. Finally, we see once again how disputes over sovereign debt hide competition and relations of domination between countries based on the export of capital, that is to say imperialist relations; in this case between Russia and the Western powers grouped around the IMF, which are targeting Ukraine. The game of geopolitical tensions practiced by the ruling classes completely neglects the Ukrainian population and its interests. A precarious population, which has been deprived of many rights, and which has the legitimate right to repudiate the odious debts which weigh on the country.

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