Odious Debt and Support for Sovereign Debt Repayment

• In Event: Sovereign Debt Dynamics: Regime Survival, Accountability, and Negotiations

Abstract

Government debt is often the remnants of past administrations that have accrued liabilities to underwrite corrupt practices or other 'odious' endeavors such as oppression or wars of aggression. This study examines the impact of such odious debt on present-day willingness to undertake fiscal sacrifices for debt repayment, and how it affects the negotiation dynamics between creditor and debtor states. We postulate that there exists a moral aversion to repaying odious debt as opposed to debt contracted for commendable purposes, such as infrastructure development and counter-cyclical social policies. Survey experiments conducted in Kenya, Nigeria, and South Africa reveal that informing respondents of the odious origins of debt has a substantial deterrent effect on the propensity to support current debt repayments and engenders a preference for tougher negotiations with international creditors regarding repayment terms. Complementing our experimental data, an observational study uncovers a positive association between the presence of odious debt and the incidence of creditor concessions, or 'haircuts,' in debt restructuring discussions.

Authors

• Matthew R. DiGiuseppe, Leiden University

• Patrick E. Shea, University of Glasgow