News Release

September 28, 2004

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Transparent arbitration should be used to handle Iraq's odious debts
Iraqis should beware of closed-door, Paris Club solutions to debt reduction

WASHINGTON -- Most debts created by former Iraqi dictator Saddam Hussein were used to oppress the Iraqi people or were otherwise not used in the public interest. Such debt should qualify as "odious," according to international legal doctrine on the matter. Debt arbitration, which relies on the rule of law and a public judicial process, should be used to determine how much of the more than $120 billion in claims creditors currently hold against Iraq are legally enforceable, a new Cato Institute study contends.

The process of determining the legitimacy of Iraqi debt should be open and based on arbitration, as opposed to the politicized, closed-door process favored by the group of state creditors known as the Paris Club, argues Patricia Adams in "Iraq's Odious Debts."

"The Iraqi people are entitled to be informed about the claims against them, in detail, not just in aggregate; they are entitled to a fair hearing in which they can make legal representations; and they are entitled to an unbiased adjudication of claims in which no adjudicator has an interest -- pecuniary or proprietary -- in the outcome," writes Adams, executive director of Probe International.

Iraqis should be wary of creditors enticing them to the Paris Club, as the organization would treat the debts of Hussein's regime as the legitimate debts of the Iraqi people and would seek to avoid accountability for its members' lending. Indeed, the overwhelming majority of claims against Iraq are from state, not private, lenders. Adams calls the Paris Club "the world's premier bailout agency, using western taxpayer dollars to rescue misplaced loans by public lenders."

The principles that define the Doctrine of Odious Debts are well known and have been applied by the United States in the past, Adams argues. Applying that doctrine today would discourage lending to oppressive governments and stabilize international finance by increasing accountability for creditors and borrowers alike.

"Deciding the disposition of Iraq's debts by the rule of law, through a public judicial process that allows Iraqis, the domestic and international press, and anyone else to understand who lent how much to whom and for what purpose, would give Iraqis confidence that government can work in their interest," she concludes.

Policy Analysis no. 526