Hello, and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway and I'm Joe. Wasn't Joe. It feels like there's a lot of terrible things happening in the world at the moment. Yeah, it does. The news has been pretty grim, between the virus, Afghanistan, natural disasters. I would I would, I would agree with your assessment. Yeah, And I think the sort of pace of the bad news means that a lot of stuff is kind of getting buried in the news cycle very quickly after it happens.
So we're recording this on auguste UM. Just a few days ago, there was a massive earthquake in Haiti. I think more than a thousand people are believed to be dead. But that death hole is probably going to go up some more um. But that event has already sort of been superseded by events in Afghanistan, and people have just sort of moved on to the next big global drama.
But I wanted to dedicate this episode to Haiti because if you think about what the country has recently experienced, you know, the earthquake that I just mentioned came off the back of its president getting assassinated just last month, and then of course before that, Haiti has had a long history of natural disasters, Hurricane matthew in, a really really catastrophic earthquake back in and the country itself is one of the poorest in the world, so it in
many ways it just feels like Haiti can't take a break or catch a break, right, I would say, pretty much all of my life, I think Haiti has been been known for violence, extreme poverty, international attempts at reviving the economy or domestic institutions that seem largely to have failed, and then of course they sort of unforeseen disasters. But I think you know, within particularly the Western hemisphere, Haiti
is known to have had an extraordinary, extraordinary, extraordinarily bad fortune. Yeah, I'm glad you mentioned international efforts to revive the economy, because today we are going to be talking about one possible effort, and possibly the most obscure of those efforts, which involves bonds UM that were issued more than let's see, almost two hundred years ago UM as part of Haiti's independence movement, and there is a discussion now about whether
or not you could possibly UM sort of unwind that debt in order to pay reparations to So it's sort of um an obscure thing, but it fits right into add lots and uh, you know our obsession with old debts, So we're going to get into it. I'm looking forward to this. This is odious debt one of the one of the topics that I think you've really done a great job sort of bringing to the forefront of media and odd lots and looking forward to this and talking
about this in the Haiti context. No, thank you. Um well, I have to credit one of our guests, Mit to Glate. He's a professor at the University of Virginia. He's the one that introduced me to this concept. And we also have his fellow researcher, Ugo Panizza, a professor at the Graduate Institute of Geneva. So welcome Mitt and Uko, thank you. Shall we start with the very basics for people who haven't heard the concept of odious debt before, what exactly
do we mean when we say odious debt? So they're theretly two meanings of odious debt as its discussed both in the popular press and in the academic slash legal literature. One meaning is just you know, any debt that you don't like it's just has a bad odor and you
don't want to pay it back. The more technical legal meaning of odious debt is that it is debt incurred by a despotic leader without the approval of the population and the knowledge of the creditors, that these debts are being used for purposes that are contrary to any benefit that would result for the populace. So the classic example, and you know during the Bush administration, odious debtspeak very popular.
When the US went into Iraq. The example was Saddam Hussein borrowing hundreds of billions of dollars to buy arms, and those arms were then used to oppress the Iraqi people. So that that that is the popularized version of this odious debt concept you mentioned. Okay, so we can understand easily enough this idea that if a despotic leader borrows money, prep doesn't use the money in service of the public, and then after they go it uh see, it's odious the idea that the public would then have to bear
the cost of that debt. How much is in the determination or the thinking of when debt is odious? How much or how difficult is it or how important is it to establish that the lender understood this that when they were lending that when someone bought the foreign debt of a given country, that they were buying into debt that really was not going to help the public in any way. So usually the lender is not really analyzed in these discussions of odious debts. Almost every discussion of
odious debts. For example, take the Saddam Huseyne case, which is you know, the most recent a lot of the debts there were literally arms dealers selling arms to Saddam, but the primary focus was on the despotism of the leader of Saddam. It's really only in a case like Haiti and sort of more broadly colonial or imperial debts that you begin to think about the lender. And that's
not something that we have traditionally done. So I want to get into the exact situation with Haiti and the money involved, but before we do, you know, we're talking about a broad definition of odious debt that really focuses on the borrower. And as you mentioned, the classical example is a despot who borrows lots of money that doesn't necessarily benefit their country's population. How did that particular interpretation of odious debt come into being because in some ways,
like it seems very very um defined and specific. So this is an interesting question that you ask, And you know, I've been working on this, and Ugo probably has a different perspective, but he's also been working on this for
a long time. We worked together on a debts incurred by Nicolas Maduro in Venezuela, and sort of I always took it for granted that, you know, if you have a despotic leader borrowing the future governments, especially if they're you know, democratic governments, they shouldn't be burdened by this debt, and it sort of seemed natural and logical and sensible,
and I didn't think about it. It seemed right until I started working with Hugo and or other two co authors about the Haitian debt, And in that context, one of our other co authors, Mark Widermer, started asking the question of you know, why have we framed this doctrine in this particular fashion. And my best guests from the literature and talking to anthropos social anthropologists who studied this in more detail, is that it's a product of the
interests who created this doctrine. Now, this is a doctrine that was created by the U. S State Department in the late eighteen hundreds after the Spanish American War. They didn't want to pay the debts that had been incurred by Spain using Cuba as collateral, and so they said, you know, you were despotic leader leaders putting down an independence movement. And then the US again in UM two thousand three two four, does not want to pay Saddam
Hussein's debts. So the rejuvenation of the odious debt doctrine again is in the context of a despotic leader, but it never really touches colonial debts, where the leaders are not quite as despotic and much more complicated, in part because the countries and the scholars who pushed this doctrine, we're pushing it in a particular context. I don't know, Hugo, if you you have a different view, I mean I am.
I am a former colonial s object then grew up in the Caribbean, so I have a particularly jaundiced view of all of this. I mean, there is also another aspect. So there is the aspect from let's say the Angio movements, you know, kill the debt and all this sort of stuff, and these people would like to cancel all sorts of death. So there is a more I don't know, leftist if you want to call it this way perspective, right, and there there is a debate asked me to say it.
It seems reasonable that when somebody borrows to oppress its own people this that should not be enforceable. But then if you talk with market people, they tell you where you draw the line, right, It's like where where does the guy become a deskpot? And some people say, if you start going there, then nobody will ever learn to any country because you know, no countries a perfect democracy.
So these other there is this other dimension. So some people said that maybe you should have an expanted that rational of obviousness. Right. So there is a famous paper by malcol Michael Kramer and C. Chandra which says, you know, at some point the official sector, my or the UN or whatever might declare this country's audious and from this moment on that contracted by this person by this country
will not be enforceable. So there is a big also discussion on this exanta versus expost, which is different from the high heat case that we're talking about here. What do you walking through the basic contours of the Haiti situation, the numbers, the claims, just sort of like give us the sort of like basic summary of the colonial debt that was incurred, why the debt was incurred, how much
it was and so forth. Okay, so I'll begin with the easy part the story, which is wonderful, and then I'll give google the boring part about the numbers that in the end are much more important. So I think it's a bit embarrassing. Ugo and I both consider ourselves scholars of international debt and have been doing this for at least two decades, and neither of us had really paid any attention to the Haitian independence debt of eighteen five. We it just seemed like this old, obscure thing we
hadn't really heard of. It didn't seem relevant to most of what we did until this last semester last year. Really, when COVID hits and we decide in our classes, you know, maybe this is time to focus on some of the poorer regions around the world and see what's going to happen if they're really hit bad by COVID and they need to think about what kind of financial recoveries can
we get. Some of my students in my Sovereign Debt class find this Haitian independence dead of eighteen twenty five, and I want to dismiss it because it is not what I had planned that we would work on in the class. And then I started looking at it and started talking to Ugo and our other co authors about it, and it's astounded. So in eighteen twenty five, Haiti has a debt imposed on it by France. France sends a
bunch of gun boats. I think there were fourteen gun boats with five hundred guns pointed at the Haitian capital, and France says to the Haitian people, look, we are willing to recognize you as independent. Haiti had fought a bloody revolution against France and one its independence in eighteen o four. So two decades prior, the French under Napole Lion had tried to take back Hadi. They had failed.
And then finally in eight and this is after the Louisiana purchase, France sort of decides, you know, no more colonies, at least in that part of the world. It's just too expensive when you keep losing, and so they try to negotiate with Haiti. We will give you your independence, We will recognize you as independent if you pay us a hundred and fifty million francs. Now, to get some sense of how much this is, and we go will hopefully talk about what fraction of hades revenues it was
at that time. But the Louisiana purchase was about fifteen
million francs. This is a hundred and fifty million francs they impose on Haiti with the gunboats pointed at them, and the calculation of this amount the historical record is not completely clear, but basically, the French King Charles needed this money to pacify the former plantation owners and their estates in France, and calculations were made based on the amount of loss that they suffered, specifically in terms of the number of slaves who went free as a result
of the revolution. So that's the basic that's that's the debt that was imposed on Haiti. Haiti doesn't pay it back for almost a century, actually more than a century, and much of Haitian borrowing in the next century is just to pay back this extremely large debt that they
owe to friends. Now in terms of specific numbers, um I leave that to UGO, so maybe they we don't have good estimates for GDP at that period and or revenues, but whatever estimates we have suggested this amount about ten years worth of revenue, so it's a very large number and or about three times situs GDP based on on the on the numbers that that we have now. So they were very very large numbers. And and that's me
to say it's more more than the Louisiana purchase. So can we maybe talk a little bit more about why Haiti agreed to pay the indemnity? So, you know, you mentioned there were gunboats um pointed at porter of Prince, which seems quite threatening. But on the other hand, Hadi
did get something out of it. And I'm sort of playing devil's advocate here, but they did get their independence recognized by France, even though they were essentially, you know, buying their freedom from slavery, which is terrible, but they got the recognition from France. That led to further recognition from places like Britain, um that opened up trade relationships and things like that. Is there an argument to be made that this can't be considered odious because the population,
you know, got something out of the agreement. So you're asking the really tough question. Haiti arguably itself proposed that it would pay something to France. Now they didn't propose this incredibly large amount. They were thinking more along the lines of the Louisiana purchase, and that would have still been at least half their GDP for the year, but perhaps manageable. Haiti at that point in time was one of the rich as parts of the world, which is
why France was so desperate to hold onto it. They they were a huge source of French revenues at the at that point in time. But the legal question of whether or not Haiti could be charged by France for a recognition or be independence or see for the slaves fighting a revolution and becoming independent um is quite complicated. It's not at all clear, at least in our research, whether or not at that point in time it was acceptable under international law for countries new countries to be
charged for somebody else recognizing them. The law is quite murky. Now we know it happened, but whether it was legally kosher is not year. Can you charge a new country for it becoming free and fighting a revolution? Again, not at all clear, and then it's not clear either that we would apply the laws and norms of that time or whether we would apply modern conceptions of human rights, where you know, making a d pay for the freedom
of the slaves clearly wouldn't be acceptable. Yeah, maybe just a mol anecdote that for the first fifteen years after independence, Haiti was actually split in two countries, with the with the president in the south and the king in the north. So the president was which was called the Pekion, was the first one to sort of propose paying some inmdernity, but again, as me too said, he had in mind a much smaller amount, while the king in the north
was always opposed to it. So the idea that a country would have to pay uh It's former colonial master for recognition, to pay this extraordinary sum to essentially escape, you know, depart from slavery. Obviously, it's you know, it's grotesque, it's awful. Why is it important, or you know, at
least intuitively it is. Why is it important to fold it into the odious debt literature because obviously the contours of it, well being I guess objectively and were morally odious, are different than the sort of conception of the conception that we talked about in the beginning of a Despot. Why is it important today in sort of the establishment of the study of odious debt to weave that in as opposed to thinking of it as its own distinct concept.
What does that get? What does that accomplish? So again you're asking an extreme, the good question and a tough one. Here's my take on this. The the odious debt movement is a powerful one. Just the rhetoric of that movement has a has had a lot of sway with NGOs, with academics in the popular press. So to get this debt that has really not gotten much attention, the Haitian independence debt of you ask anybody in Haiti, they know about it, they think about how many billions they are owed.
But ask people outside of Haiti, scholars who study this, ask people in France, anywhere else in the world, they have no idea about this. To bring it into the odious debt framework, and and this is as odious of a debt that we've ever had in history, I think could give power, rhetorical power to the movement to get some kind of compensation paid, but also would open the door to other similar colonial debts that have not been
included in the odious debt discussions. So that, I mean, this goes back to the question that Tracy started with, which is, you know, how is it that the odious debt discussions really have been very limited to these despotic leaders and whether or not sort of Western creditors will get paid back on their bonds when there are all sorts of other stinky debts around the world, particularly colonial debts.
I mean, think of King Leopold of Congo. He borrowed heavily on the international debt markets and then you know, basically committed genocide in the Congo. There's no discussion of you know, those debts. But but this one is is a this one is among the really just the stinkiest
of those to my mind me too. You mentioned, um the rhetoric of odious debt being a powerful influence, and I think here it's really important that we mentioned that even though there's been a lot of talk about Odia's debt, it hasn't actually been um, sort of acted upon in any real way. So the Iraqi debt that you mentioned earlier, and we actually recorded an episode a while back with Simon Hendrickson, who did some really great work on this.
The Iraqi debt situation was basically the closest the world ever got to actually acting on the principle of odious debt and negating some borrowings under Saddam Hussein, But it didn't actually happen. So I guess two questions, Why hasn't it happened yet if everyone's talking about it so much? And then secondly, what good is talking about odious debt if it never actually comes to fruition. So I'll use
the Iraqi example. You guys had a great episode with Simon, and just drawing from Simon's work, discussing the Iraqi debt in terms of its odious nous was part of the strategy of the legal team there, and they knew they didn't have a leg to stand on if they actually had to go to court and try to argue that this doctrine existed. Now, there are legal scholars who argue that as a matter of customary international law, such a
doctrine has evolved. Alved I am skeptical that you could actually persuade a court to do that, but the rhetoric of odious debt was powerful enough that the negotiators for Iraq were able to get in the Paris Club the biggest write down of debt ever in history. I mean it was something like a right down of debt. And it was because at least in part, that they clothed it in the rhetoric of odious debt. I mean, now,
they did it brilliantly. I mean they got everyone basically to agree to take this massive write down because nobody wanted exposure of what had actually happened. And if we go back in time to the strategy that the lawyers for Haiti had planned in two thousand, between two thousand two and two thousand four, this was exactly what they had in mind. They I don't think they thought they really had much of a chance of sort of winning a legal case, but they wanted to get into court.
And once they got into any kind of international jurisdiction and they got a hearing, then the atmospherics of how bad this was was going to be on their side. So that's a long winded answer to why this could
have really practical consequences. Can I add something crazy? I'm you know, I'm by nature optimistic, and I remember one episode and so if you remember around the in the nineties, there were people campaigning for for multilateral debt relief, and basically the position of the you know, US administration and that ate at that point was that this is never
going to happen. And then at some point it just happened it and the you know, the White House was on board, and the people who were on board were exactly the same people who two or three years before I said this is never gonna happen. The you know, the the World Bank is never going to cancel that or by lo income countries. So in a sense, maybe you know, preparing the ground, the sort of building a case for something that you think is right, maybe at some point things can change. So I also see it
is in this sense. But but but met always thinks that I'm I'm a dreamer. Can we go if we go back to the details of Haiti. I mean, you mentioned the stats are not particularly reliable from that time, but maybe the debt was years worth of total total
revenue for the country at the time. And as you mentioned, it's still talked about today and we taught and as Tracy and I discussed in the intro, Haiti is obviously one of the poorest countries is known and under you know, people think of it as one of the poorest countries
in the region. How much did that debt contribute to the economic trajectory, the poor economic trajectory of Haiti some nearly two hundred years ago, or about two hundred years ago, how much did that contribute to the economic and sort of disaster that Haiti is known to be all these years later. So so we did a bunch of backup of the envelope exercises. Some exercises are trying aimed at trying to estimate how much this money would be worth today.
And another exercise is exactly focused on your question, Joe, how much of the audible growth performance of of a height year over the past to two years can be attributed to this death. I'll tell you about the numbers. But before that, there is a document in in in a the classified document in the archives of the i m F. And this is a report about of a mission to a hitty in So the IMF must have
been one or two year old. And let me use this to just give a big thank you whoever manages the archives of the IMF, because they did an amazing service. They put everything online, all these classified documents, and now I can kind of read this stuff from my bedroom
and it's it's fantastic. So anyway, this I m F document starts by saying fiscal policy in Haiti in general has not been development promoting because it has priviolely been primarily motivated by revenue els and basically to service the debt. And this has taken priority on any other type of investment that promoted economic development. So without running any let's say statistical analysis, there is this, you know, report from the fund from seven years ago that basically says there
is some problem linked to the death. Having said this, there are some econometric estimates on how that affects GDP growth, And there is a famous paper by three I m F economists again Katy Pattillo and the Poisson and and Luca Ricci, which suggests ballpark estimates the high level of that reduced growth between one uh and two percentage point
per year. Now, if we apply the lower this estimated to this, just we applied the one percent growth reducing effect, we find that gdpeper carpet and heating now should be about eight THO dollar, which is much higher than than than what is today, and in fact, it would put it basically at the same level of income per capita of of the Dominican Republic. Now it's hard to say that, you know, without the death, would be the Dominican Republic,
But that's what you get from doing this calculation. And then if you compute the present value of this differentially income per capita, you get, you know, a ridiculously high number. You get something like, you know, one trillion dollars, which is,
you know, which is really a huge number. But even if you get that the growth effect of the death, it's only one fifth of the lower bound estimate of patio and quotas, you still get that the present value of the growth effect of this death is about fifty one billion of two day's dollar, which is three times of HIGHTUS GDP. Which interesting was that debtojpratio when the debt was creative? Um? Quite a coincidence? Um? Okay. So so here we have this debt burden, which Mittwo has
described as like the stinkiest of all odious debt. We have something that, as Ugo just laid out, basically contributed to the long term poverty arc of Haiti. You can trace the impact of the debt on Haiti's current debt situation, you know, two hundred years later, which is pretty amazing. What are the chances that odious debt actually comes into play and that we get some sort of legal process
exploring this option. I guess that's another way of saying, what would illegal claim on this issue actually look like? And is it more likely that we get a situation similar to the Iraqi debt where the odious that is used as an argument for some sort of additional financial aid rather than total reparations, you know, fifty billion dollars or whatever, based on the economic impact of the original bonds.
This in a sense brings us full circle to the question that you have asked Tracy about the existence of an odious debt doctrine. If you if we were really litigating this, so somehow we could get a jurisdiction like the International Court of Justice to hear this, and that would be hard because France would have to agree to show up. Then I think it's a fairly straightforward legal
claim under international law. Even if you don't want to use the odious debt doctrine here, you would just make the argument that this was an unjust illegal debt was imposed in eighteen twenty five and the money needs to be returned, so we would call it just give us restitution. You were not entitled to take our money. Give it
back to us. And the way you would calculate damages for them having unjustly taken your money and not even imposing punitive damages would be said would be to ask, what are the opportunity costs of your having taken between ninety million francs and a hundred and fifty million banks depending on how you make the calculation back in eighteen twenty five or over this lengthy period. So that's if
you get in to some kind of tribunal. Now, the lawyers in two thousand four, under President Aristide, we're just about to file a claim. There was this dream team of lawyers from around the world who were working pro bono for the Haitians, and they thought they had a good chance of getting into a tribunal. And then President Aristide is overthrown and the new government decides that, uh, you know, it does not want to anger the French who are supporting it in bringing such a claim, and
the whole thing disappears. But this is not as implausible of a claim as I would have thought. Legally, the Iraqi argument was this is um much more potent. But you have to get to some tribunal. And you know, Ugo and I have presented our work in front of a few audiences, and often we are faced with our friends who are French economists who have never heard of this, and they are completely outraged that that that France did this. I mean that their reaction is uh. I have not
found their reaction to be defensive. Instead, it's why didn't I know about this? And what can we do to fix it? I do think that this is a matter of public discussion and that will result in something positive, particularly given the horrible state that hades in now. Tragy, I think that's a good place to leave it for me, unless you have anything further that works for me. Yeah, I think you you both laid it out the issue
UM wonderfully. So thank you so much for coming on all thoughts and walking us through how two hundred year old debt could still be relevant to today. Thanks for having us, Thank you so much. Thank you that would frantaic that really I really appreciate it. So, Joe, this is, as you can probably tell, a topic that I find endlessly fascinating, partly because I think it says something wider about financial debt. And I don't think we think about
this often enough. But debt is almost exclusively about morality and fairness in the sense that in order for debt to exist, you know, someone has to borrow and another person has to lend, and someone ends up owing someone something. So yeah, and so there are so many judgments and norms that go into how that story is told of who owes what to whom and why. And I don't think we step back and sort of consider those norms enough and the judgments that are shaped thing how debt
actually functions and how we think about it. Yeah, you know. The other thing I completely agree. You know. The other thing that's interesting is, you know, finance in general is like a kind of uh. I sometimes think of finance as a time machine because you're essentially uh, you know, you you can you can have cash right now that would otherwise say, like if you borrow money, you can have cash right now, that would otherwise take several years
worth of work. So you know, you're sort of transferring. It's transferring of value, transferring of money across time, and you go and me to discusses like essentially an extremely long version of that, and so you know, it's one thing. It's like we could all wrap in our heads very concretely, how I say, debt that was taken out ten years
ago may affect us today. But there's no particular reason to think that a debt that's two years old that people have forgotten about, the people around the world don't even know about or had never thought about before might still be relevant today. It's kind of an extreme outlier, but fundamentally, as you say, it's all part of the
same question. But I guess that's what makes this particular case extremely interesting and me to point it out sort of like worth folding into the odious debt literature totally. And the other thing that I was thinking, and we've been talking a lot about this on all thoughts for the past year now, but whether or not the extraordinary circumstances of one spark a wider reckoning on some of
these complicated issues. And I think, you know, we've spoken about attitudes towards debt shifting in the context of modern monetary theory and MMT. And I do wonder if given the terrible humanitarian situation unfolding in Haiti, you know, you have COVID, you have the president getting assassinated, now you have another catastrophic earthquake. I do wonder if if you could see a big shift in the narrative around something
like colonial era debt. Well that's interesting because me too made this point that even prior so you know, it's like, okay, why is this an important thing to classify as odious debt? And as he pointed out, yes, there is the legal dimension,
but there's also the activist dimension. There's the NGO dimension, there's the kill the Debt movement, and so much like m m T, which is sort of this hybrid between I would you know, I describe it as like a hybrid between sort of like pure economics and political activism. It kind of feels like situations like this end up being this hybrid between what's in the law, what's in the sort of legal text, and also the general public
and the activism around these things. And so I think you make a really apt point here that you know, we could be in a moment where there's just sort of like more public awareness and then that has this sort of like feed through effect to what happens in various courts of law and marketplace totally. And I would say that gets back to the sort of um morality of bonds more widely, and this idea that you know, ultimately a debt is about fairness um and achieving fairness
in the outcome. And so in many ways it's sort of the perfect instrument through which to discuss the injustice of um the past. Like it fits very nicely into arguments because you can suddenly say, well, you owe us x amount for damages inflicted you know, two hundred years ago, and we can put some sort of quantity on them, and we can talk about what the economic impact is. All right, Well, Joe, I could keep talking about this forever, but we should probably go um, should we leave it there?
Let's leave it there? Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't Thal. You can follow me on Twitter at the Stalwart. Follow our guests on Twitter. Ugo Panitza, He's at Panizza. Follow our producer on Twitter. Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today, and check out all of
our podcast at Bloomberg under the handle at podcasts. Thanks for listening.