However, in many cases, this old debt was used to work against the current government, say to finance a civil war, or to the old government's own personal interest, for example, into the accounts of corrupt officials.

Take Libya, for instance. If the previous regime had borrowed millions of dollars to buy weapons to use against the rebels, should the rebels have to pay off the debt? In some cases, it becomes justifiable for the current government to not pay that debt.

According to the Centre for International Sustainable Development Law, to qualify as an odious debt, a national debt has to meet three criteria:

1 The debt is contracted without the consent of the population

This means that the people of the country must not have agreed to borrow the money in the first place. Dictators and other totalitarian regimes that ignore the voice of the people would thus fall into this category. Such a debt is said to be odious because it was imposed on the people in the first place, and to force them to repay it would be unfair.

2 The debt must have no benefit for the state

Any debt which benefits the people, for example a national debt to build a highway, would not be considered odious, whether the people agreed to the debt or not. If the people benefit from the loan, it was in their interest for the country to borrow such a sum, so the creditor is entitled to recover the debt.

3 The debt must be contracted without knowledge of the people

This is similar to the first criteria. However, it deals with the transparency of a government. If citizens know that a debt is issued, and did not object to it even though it is without their consent and does not benefit them, then they would still be obliged to repay it. However, if they did not know about the debt in the first place, to ask them to bear the burden would be unfair.

It is important to note, though, that all three criteria would have to be met. If a debt does not satisfy any one of these criteria, then it would still have to be repaid.

To illustrate the arguments for and against odious debts, we will examine two case studies.

The Tinoco debt in Costa Rica 1923

In 1917, Federico Tinoco overthrew the government of Costa Rica and became the Central American nation's ruler. In the summer of 1919, the Tinoco government borrowed money from the Royal Bank of Canada. That money was used by Tinoco and his brother and for no other public purpose. However, the debt was considered a national debt since it was borrowed under the name of the Costa Rican government.

By August, 1919, Tinoco and his brother had left the country and their government fell in September. The new government then enacted a law to invalidate the debt. The dispute was arbitrated in Canadian courts where the Royal Bank of Canada filed a complaint.

US Chief Justice William Taft invalidated the debt on the grounds that it did not constitute a valid public debt, and should be treated as a personal debt instead. He argued that the bank had known that the debt was for personal enrichment, since the government had already lost popularity among the people and there were national revolts. The national debt was thus cancelled.

This is a classic case of an odious debt which fits all three criteria. First, the debt was without consent of the people, as the government was in effect a dictatorship at that time. Second, the debt was only used for personal enrichment and so did not benefit the people. Finally, the debt was made without the knowledge of the population since it was never disclosed to the public. In this case, we can clearly see why such a debt is unfair and, well, odious.

Furthermore, the cancellation also forced banks to consider lending more carefully since they would have to bear the consequences should the debt end up being odious. This deters the creation of odious debt in the first place and is often the strongest argument for advocates of the principle.

Apartheid debt

In the 1980s, because of the racial dictatorship in South Africa, the regime was denounced both by the Commonwealth and the United Nations. But the South African government continued to borrow from private banks. In September 1985, the government stopped paying its debts. However, a settlement was reached in 1987 where the banks agreed to reschedule the debts instead of defaulting.

After Nelson Mandela was elected president, the public called for the apartheid-era debts to be nullified. The country had to focus on public projects, such as housing, infrastructure, education and health. The previous government had hardly spent any money at all on development in black areas. It did not make sense to continue paying money to international debtors when it could be better used to help people at home.

But the African National Congress came under heavy external pressure not the renounce the debts.

A leader in such a position would be forgiven for trying to gamble against any repercussions from foreign nations. But South Africa might very well want to borrow money from these same lenders in the future. As is the case with an individual, if a country's credit rating proves to be too risky, few people will lend it the money. The pressure was compounded with a threat to remove foreign investments if the debts were cancelled.

This case shows us the practical difficulties in denouncing odious debts. As this sort of national debts often involve banks and governments on a national scale, the dispute is often settled through political bargaining, rather than going to court.

Thus, though the concept of odious debt is legal in nature, in practice, the cancellation of such debts is often better achieved through diplomacy. The conflicts of other national interests, such as foreign investments in this case, also further complicate the situation.

Conclusion

Although the doctrine of odious debt seems well-defined and well-justified on the surface, in practice it is very hard to prove. Political bias and the complicated nature of the debts often make a clear definitions impossible. Furthermore, even upon successful proof, the actual cancellation of the debt is still subject to a number of external factors.

In 2003, the United States congress initiated a cancellation of Iraqi national debts of more than US$125 billion on the basis that they were odious debts of the previous Saddam Hussein regime. Upon successful advocacy, the debts were cancelled because they were deemed unsustainable, rather than odious.

The success of the Iraqi debt relief shows that, despite all the difficulties of the legal doctrine of odious debts, the power of the argument remains. Furthermore, the fact that the money may not be paid back urges us to continue examining this concept.

Looking into the future, the International Court of Justice is currently working to incorporate this concept into the international legal system. Although the project is still in its infancy, the potential impact is immense.

On Thursday, we will look at the issue of compensation to Hongkongers who lost their fortunes held in yen when Japan retreated from Hong Kong after the second world war