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The Illegitimacy of Debt1

The Austrian Medical Waste Incinerator, Northrail, Telepono sa Barangay, World Bank-funded
textbook, and the Small Coconut Farms Development Projects are just some of the few
illegitimate debts that the Filipino people have been paying for at the expense of additional
funding for social services such as education, health, and housing.

The concept of illegitimate debt or illegitimacy of debt is not a new framework. The issue of
illegitimate debt was first raised by groups such as the Freedom from Debt Coalition,
immediately after the downfall of the Marcos administration, to describe the Bataan Nuclear
Power Plant project – a US$2.6 billion white elephant that was fully paid this year without any
benefit to the people.

During the global debt crisis in the early eighties, debt campaigners have already highlighted the
issue of illegitimate debts though using other descriptions like onerous, fraudulent, immoral,
odious, etc. Even earlier, in the year 1927, an internationally recognized principle called the
Odious Debt Doctrine was already developed by Alexander Sachs. Under this doctrine, debts
contracted by the regime not for the needs and interests of the state should not bind the entire
nation to these debts and therefore be treated as personal debts of the ruler of this regime.
Odious debt is one type of illegitimate debt which the Marcos regime had left the Filipinos to
pay.

Since the discussions on the debt began, the issues of debt service impacts and debt
sustainability and affordability had dominated the discourse. However, major initiatives from
debt campaigners are working towards emphasizing and highlighting the question of
illegitimacy of debt. One of the key attempts towards this is the formulation of a comprehensive
definition on illegitimacy of debt wherein debts which violate basic principles such as human
rights and sustainable human development, justice and fairness, accountability and
responsibility, sovereignty of peoples and nations and democratic rights and processes are
deemed to be illegitimate or UNACCEPTABLE.

The question of illegitimacy is oftentimes linked to legality. But since not all laws can be
assumed to cover the concept of illegitimacy, legality does not offer a broader perspective of
viewing at the debt problem and much that it does not give possibilities for a just and ideal
solution.

When is a loan or project illegitimate?:

● If processes and transactions involving bribery, fraud, coercion, misrepresentation and


others which violated procedures and requirements mandated by constitutional and
national laws either laws of the lender, borrower or both
● If the terms and contractual obligations are evaluated to be not fair like imposing
usurious interest rates and/or onerous provisions
● If the projects financed impacted negatively the environment, livelihoods of people and
their communities including their well-being
● If the funds were wasted to corruption and mismanagement or if the loans are used to pay
for debts that are already considered illegitimate (e.g. Marcos debts).

______________________________
1The concept and framework on illegitimacy of debt in this article are based on presentations by Lidy
Nacpil, Coordinator of Jubilee South and Asia Pacific Movement on Debt and Development and Vice
President, Freedom from Debt Coalition.
● If the debt service for the loan will make budget for basic social services suffer greatly
● If there are damaging effects of conditionalities of the loans such as privatization of
essential services (water, power, health)
● and if the loans or projects directly violate the economic and political sovereignty of
people including the democratic principles and processes.

Primarily, illegitimacy of debt does not exempt the recklessness of borrowers but, at the same
time, it already recognizes the importance of making the lenders accountable for the money they
are lending to countries. The concept looks beyond the responsibility of borrowers and gives
more weight to the culpability of lenders which are evident in most cases of illegitimate loans.
The knowledge that unequal power relations has been going on since the time of colonization
between the North/lender countries and the South/debtor countries is in the core of this
framework. The concept of indebtedness of South countries, in itself, is arguably illegitimate
because powerful countries shape agreements in their favor, colonizers have exploited the
vulnerabilities of South Countries of which they are responsible for and observing the current
economic standing today, the biggest bilateral lenders are former colonial powers of the “debtor”
countries.

In an overall analysis, debts claimed from the South by North countries have already been paid
many times by the people of the South financially, economically, socially and in environmental
terms. It is now time for the South to stop paying for these debts. The resources and labor that
has been extracted from South countries generate overflowing wealth for the North countries
leaving the South exhausted of its own resources and its environment exploited, degraded or
destroyed.

True, the battle on the debt issue has yet to be won and victory seemed to be elusive. However,
the important thing is that the concept of illegitimacy of debt, which was once blurry, is now
registered, raised, debated in the global arena of debt campaign. With this advancement in the
campaign comes the understanding that eradication of the debt problem should be based on
justice rather than forgiveness nor charity.

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