Illegitimate Debt

Eurodad believes that impoverished people in developing countries should not be burdened by paying for debts which did not benefit the populations of the recipient countries. Such debts are referred to as illegitimate debts. A debt may be illegitimate because the loan was contracted by a despotic power which then stole the cash, used it to build-up their military capabilities or to oppress the people, or because the loan was contracted for ill-conceived and corrupt development projects which failed.

Eurodad argues that these debts must be declared null and void and creditors must assume co-responsibility for reckless lending. In many cases, creditors extended loans in the full knowledge that the funds would not be used for effective development purposes.

The campaign for international recognition and cancellation of illegitimate debt focuses on exposing key cases and working to secure new international lending standards and approaches. These are outlined in Eurodad’s Charter on Responsible Finance and the Global Platform on Sovereign, Democratic and Responsible Financing.

In October 2006, Norway agreed to cancel the debts of five countries acknowledging “shared responsibility” for the debts which ensued from failed domestic-interest driven lending in the 1970s and 1980s. So far Norway is the only lender to take this important step, but Eurodad is working with colleagues across Europe to push other governments to follow this lead. Debt audits are used as a tool in identifying specific cases of illegitimate debt by unpacking the loan portfolio to reveal which debts are of dubious origin and therefore should not be repaid.