In their book, Sovereign Debt Diplomacies: Rethinking Sovereign Debt from Colonial Empires to Hegemony, Pierre Pénet and Juan Flores Zendejas are correct in saying that it is essential to understand why the economic elites of the former Third World nations eventually accepted conservative policies for the management of international debt.
Pénet and Flores Zendejas correctly state that: “Understanding how and why debtor countries gave their assent to structural adjustmentpolicies, austerity programmes and privatization plans is instrumental to better understanding how the current hegemonic regime of sovereign debt disputes came into being and how it is reproduced.” (p.28).
The book which they co-edited offers no explanation for this phenomenon. For my part, I have often written on the subject. Here is a very brief summary of my explanation:
Since the start of the 19th century, the ruling classes of the Global South (by which we mean all the countries that were formerly referred to by the term “Third World” or “Periphery,” as opposed to the imperialist powers or “Centre”) have been favourable to financing the State via debt, since that allows them to pay as little as possible in taxes. Further, the fact that the governments of their countries contract debts in foreign currencies (pounds sterling and French francs in the 19th century, and largely dollars since the Second World War) enables them to have access to the hard currencies necessary for importing the products and services required for their business activities and for their own consumption. Lastly, the ruling classes derive revenue in the form of rents from public indebtedness since they purchase sovereign debt securities on both internal and external debt.
The ruling classes of the Global South are favourable to financing the State via debt, since that allows them 1. to pay less in taxes; 2. to have access to the hard currencies needed for importing the products and services needed for their business activities and for their own consumption; 3. to derive revenue in the form of rents from public indebtedness since they purchase sovereign debt securities on both internal and external debts.
I have shown this in detailed fashion in several studies devoted to Latin America (with the emblematic example of Mexico or Simón Bolívar’s Gran Colombia), or those of Egypt and Tunisia, etc.)
And what was true in the past remains true in the present.
This explains why acts of debt repudiation by countries of the Global South have come about as a result of revolutions or major popular movements in which the people enter into conflict both with the interests of the local ruling classes and with those of the major creditor powers of the North.
Acts of debt repudiation by countries of the Global South stem from revolutions or major popular movements
Among the popular mobilizations that have ended in debt repudiations in countries of the Global South are the one in Mexico, between 1910–1920, which ended in a major victory over the country’s creditors in 1942 following some thirty years of suspension of payment; the triumphant Russian Revolution of 1917, which led to the repudiation of debts by the Soviets in 1918; the popular uprising of 1919 in Costa Rica, which also led to repudiation of debts; the Chinese revolution of 1949; the revolution in Cuba in 1959; Algeria’s revolution in 1962; the popular uprising against the Shah in Iran in 1979, and yet others.
Alexander Sack believed that States should be liable to prosecution by private creditors
The conservative Russian jurist Alexander Sack, in 1927, developed the doctrine of odious debt  in order to warn private creditors about practices that could generate financial losses for them. This was a response to a series of debt repudiations that impacted the capital of private lenders between the end of the 18th century and the 1920s. At that time, as sovereign powers, States had a special status with regard to private creditors, and few judicial bodies were inclined to rule that a country must pay compensation to a private creditor.
In the 19th and early 20th centuries, the majority of jurists clearly affirmed that it is not possible for private individuals to prosecute a State regarding matters of debt. Below is a series of jurists’ opinions:
We may cite Louis Berr, Étude sur les obligations (Paris, 1880), p. 236, who says: “The Frenchman who concludes a contract with a foreign government subjects himself in advance to the laws of that government concerning the jurisdiction and law of its courts; he renounces voluntarily the protection of his own national laws. In consequence, questions concerning the performance and liquidation of obligations directed against a foreign state can only be brought before its own courts in accordance with the rules of public law there in force.” 
In the 19th and early 20th centuries, a majority of jurists clearly affirmed that private individuals may not prosecute a State regarding matters of debt.
Sir Robert Phillimore, in Commentaries upon International Law,  writes: “The English courts have decided that bonds payable to bearer by the government of a state only create a debt in the nature of a debt of honour, which cannot be enforced by any foreign tribunal nor by the tribunal of the borrowing state itself, unless with the consent of its government.” 
Carl Ludwig von Bar, a well-known authority, in Theorie und Praxis des internationalen Privatrechts (Hannover: Hahn, 1889), II 663, says: “If all the creditors could actually levy execution upon the State property, they could bring the State machinery to a standstill. Public debts, therefore, issued under a special law, contracted with a certain number of creditors, rest upon the condition that the State is in a position – of which the State by legislation is the judge – to perform its obligations. The State has so to speak a beneficium competentia in the widest sense; it must first preserve itself, and the payment of its debts is a secondary consideration.” 
Albert Wuarin: “It is by a law (or decree) that the loan is authorised; it will be through the promulgation of another law (or another decree) that the State, with no need to explain, may declare itself free of any commitment or may decree the suspension of the amortization of the payment of interest, annul all guarantees…” (cited by Sack, p. 37).
Albert de La Pradelle  and Nicolas Politis: “The debt resulting from a loan is as binding in law as is any other debt. It is nevertheless true that, having been contracted in the public interest, the debt is subject for its execution to the conditions imposed by the financial and administrative necessities of the debtor State: as it was created by virtue of legislative measures, so may it be modified by virtue of further legislative measures.” 
de La Pradelle and Politis: “Subscribers, like subsequent purchasers of the debt paper, are ignorant neither of the nature of the operation nor of the risk involved; they accept this in advance. They know that although the debtor government is under obligation to pay, if forced by circumstances it is free to defer the due date of the debt, to modify its terms, or even to reduce the amount to be repaid. In the absence of any international regulation of State bankruptcy, liquidation is dealt with by the debtor. However if the State cares about its reputation and creditworthiness, it will prefer to proceed with the approval of its creditors rather than by use of authority.” 
Gregoire Dimitresco: “The State has the right to retract on total or partial execution of the contract it has entered into with its creditors, or to modify the clauses of that same contract, if deemed appropriate and if the circumstances demand it. The State derives this right from the nature of the contract. To enter an engagement under any other conditions would indeed be incompatible with the role and functions of the State.” 
Luis Maria Drago, the Argentine jurist and foreign minister,  stated at the 1907 Hague Peace Conference:
“There can be not the slightest doubt but that State loans are legal acts, but of a very special nature as cannot be confused with any other kind. The common civil law does not apply to them. Emitted by an act of sovereignty such as no private individual can exercise, they represent in no case an engagement between definite persons. For they stipulate in general terms that certain payments shall be made, at a certain date, to the bearer who is always an indeterminate person. The lender, on his part, does not advance his money as he does in loan contracts; he confines himself to buying a bondin the open market; there is no certified individual act nor any relation with the debtor Government.
In ordinary contracts the Government proceeds in virtue of rights which are inherent in the juridical person or administrative corporation, by exercising that which is called the jus gestionis or the right with which the representative or administrator of any joint-stock company whatever is invested.
In the second case it proceeds jure imperii, in its quality as sovereign, by effecting acts which only the public person of the State as such could accomplish. In the first case we understand that the Government may be summoned before the tribunals or courts of claims, as happens day by day, so that it may make answer with regard to its engagements in private law; we could not conceive in the second case that the exercise of sovereignty might be questioned before an ordinary tribunal. It would at least be necessary to establish this distinction of a practical nature, to which I permitted myself to refer in the plenary Commission; for ordinary contracts, courts are available; there are no courts available to sit in judgment upon public loans.” 
These different opinions from various jurists reflect the practice of an entire period running from the end of the 18th century to the 1970s. Alexander Sack’s work was devoted to persuading the international community that they should adopt a code and international legal structures that would better guarantee private creditors’ rights against States (p. XIV). From this point of view, Sack’s proposal was highly successful. In the 21st century, private creditors regularly manage to prosecute States in the courts over debt issues, while in the 19th century and early 20th, such claims were often rejected.
In the 21st century, private creditors regularly manage to prosecute States in the courts over debt issues, while in the 19th century and early 20th century, such claims were often rejected.
As shown by Pierre Pénet and Juan Flores Zendejas, from the 1970s–1980s, with the neoliberal onslaught, creditors have finally managed to erode State immunity. They have managed this through the actions of various agents: the governments of the major powers, especially those of the United States and the United Kingdom, the judiciaries of various countries, the World Bank and the IMF; and also the governments of countries of the South who have renounced the exercise of their full sovereignty by delegating the power to intervene in litigation over sovereign debt to foreign jurisdictions, particularly those of the United States and Great Britain. From before the 1970s, the World Bank and the IMF, acting in the interests of the major Western powers, have played a significant role in defending the interests of private creditors, as I mentioned in the second part of this series dedicated to Pénet and Zendejas’ book, which is very clear on the subject.
From the 1950s, whenever a member country of the IMF or the World Bank asked them for a loan, those two institutions fixed two prerequisites: the repayment of international debts previously contracted and “adequate” indemnification of nationalized foreign holdings. As shown by Julia Juruna in an article published in Le Monde diplomatique in October 1977: “The most striking case was no doubt Guatemala, where the World Bank resurrected the question of the payment of bonds issued in 1829: the country only managed to obtain loans from the Bank after the Guatemalan courts had honoured the bearers of the more than a hundred-year-old bonds.” 
In 1976 the undermining of the immunity of sovereign States made a qualitative leap. As Pénet and Zendejas write concerning the United States, “The Foreign Sovereign Immunities Act of 1976 gave a more restrictive interpretation of the principles protecting sovereign debtors and enabled creditors to sue a foreign government in the American courts” (p. 25).
In 1976 in the United States undermining of the immunity of sovereign States made a qualitative leap
Before the Third World debt crisis which began in 1982 and the securitization of sovereign debts, creditors, with the help of the World Bank, the IMF and governments of the North, were able to score extra points in affirming their rights in the face of debtor States.
Pénet and Zendejas (p. 26) mention the claim I made in my book Your Money or Your Life: the Tyranny of Global Finance (1998) that there is continuity between the imperialist practices of the 19th century and those of the 20th. However, my various studies clearly analyse the profound evolution the methods used by the imperial powers and institutions such as the World Bank and the IMF have undergone. The forms that imperial domination takes have changed considerably.
Let us examine two fairly recent examples: those of Argentina and Greece. They provide emblematic cases of the evolution towards giving creditors increased means of coercion to ensure that their own interests take precedence over those of States and peoples. Pénet and Zendejas mention this. In the two following paragraphs I summarize the two examples as I see them.
Starting in the 1970s, successive Argentine governments have delegated the power to judge disputes between Argentina and its creditors to the legal system of the State of New York. This policy conducted by the Argentine authorities is in contravention of the Argentine constitution, which stipulates that the country may not abandon its sovereignty when it contracts international obligations.
Successive Argentine governments have delegated the power to judge disputes between Argentina and its creditors to the legal system of the State of New
Vulture funds were thus enabled to have courts order Argentina to pay them colossal amounts, completely disproportionate to the money actually spent on acquiring bonds that had been heavily discounted on the secondary bond market (see Giselle Datz in Pénet and Zendejas p. 267–268). Argentina is by no means an isolated case, which is what makes it emblematic. Practically all governments of the Global South agree to adopt the same orientation and entrust the judiciary of New York or London with the exorbitant power to judge any dispute concerning sovereign debt.
The case of Greece is just as emblematic. Until 2012, bonds issued and sold by Greece on the financial markets stipulated that any disputes with creditors would be settled by the Greek judiciary. Under pressure from the Troika (the European Commission, the ECB and the IMF), the Greek socialist government of George Papandreou agreed that old bonds should be replaced by new ones subject to British law and the British judiciary, who would settle any conflicts. See the report of the Truth Committee on Greek Public Debt, instigated in 2015 by the Speaker for the Hellenic parliament, who entrusted me with its scientific coordination.
States begin to respond to the abuses of private creditors
One particularly interesting chapter of Pénet and Zendejas’s book describes how certain States began to respond to the exorbitant rights of private creditors. Chapter 11 is entitled “Placing contemporary Sovereign Debt: The fragmented landscape of legal precedent and legislative pre-emption.” The author, Giselle Datz, shows clearly how private creditors, especially vulture funds, made use of the New York State judiciary to prosecute Argentina in 2008 and the early 2010s. Datz rightly points out that since the years 1970–1980, States have gradually agreed to include clauses forfeiting their immunity in contracts regulating the issue of sovereign bonds sold on the financial markets (p. 264). This has had fatal consequences. The author then shows that certain States of the North, under pressure from social movements defending the peoples of the Global South, have adopted laws that counter the claims of vulture funds. She devotes three pages (pp. 271–273) to the actions led by the CADTM and other organizations such as the French CNCD (National Centre for Cooperation in Development) and its Flemish counterpart, which managed to get the Belgian parliament to adopt a law against vulture funds in 2015.
There follows an excerpt from Datz on the topic: (…) “in July 2015, the Belgian House of Representatives unanimously passed its ‘anti-vulture funds’ law (…). The bill’s draft of April 2015 cites several cases of vulture fund-driven litigation in foreign courts as its motivation: Elliott Associates v. Peru in Belgium (1996–99), Kensington International v. the DRC in Belgium (cited above), FG Hemisphere v. the DRC in a Jersey Court in 2004, Donegal International v. Zambia in British courts (2007), and, of course, NML v. Argentina in New York courts (with critical judicial decisions stated in 2008 and 2012). The law established that ‘if a Belgian court ﬁnds a fund acting as a “vulture”, the latter cannot claim more than the discounted price it paid’” (Datz in Pénet and Zendejas, p. 272).
The law was challenged before the Constitutional Court of Belgium by one of the world’s biggest vulture funds, NML Capital Ltd, owned by US magnate Paul Singer. The CADTM in association with the CNCD took legal action to have NML Capital Ltd’s claim dismissed by the Constitutional Court of Belgium, confirming the validity of the 2015 law. 
Of this Datz wrote:
“Finally, on 31 May 2018, the Belgian Constitutional Court put to rest NML Capital’s claims that the 2015 Belgian law was unconstitutional. Rather, the Court saw the law as ‘non-discriminatory, respectful of Belgium’s EU and international commitments and not in violation of any constitutional right’. This was a victory for the supporting public and, in particular, for the NGOs that joined the Belgian State litigating in support of the law: the Belgian coalition of French-speaking development NGOs, CNCD-11.11.11, its Flemish sister organization 11.11.11, and the Committee for the Abolition of Illegitimate Debt (CADTM).” (ibid. p. 273).
It should be emphasized that other countries such as France and the United Kingdom have also adopted laws to curb the rights of certain private creditors, such as vulture funds (see G. Datz p. 270 and pp. 273-274).
This is just the start of a backlash in the face of abuse from private creditors.
The response that is made to the abusive claims of creditors will inevitably depend on the actions of populations. Nevertheless, the legislation mentioned above is certainly a small step in the right direction.
The author is grateful to Patrick Saurin for revising this article.
Translation: Snake Arbusto and Vicki Briault, CADTM