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12 March, 2017

Demystifying Alexander Nahum Sack and the doctrine of odious debt

Eric Tousaint’s study of the odious debt doctrine

by Eric Toussaint

Part 7 - The repudiation of the Tsarist debt in 1918

According to Sack, the Tsarist State, regardless of its legitimacy or its antidemocratic nature, was a regular government. The debts it had contracted needed to be honoured despite the change of regime. In February-March 1917 a revolution took place and brought a provisional government to power. This provisional government fully recognized all the debts accumulated by the Tsarist regime (p. 52), which Sack finds perfectly normal.

In October 1917 a second revolution took place and the provisional government was overthrown and replaced by a government led by the Bolshevik Party, which was backed by the soviets (councils of soldiers, workers and peasants). According to Sack, the Bolsheviks taking power constitutes a coup, but he does not question the fact that theirs constituted a new regular government which gradually extended its control to the entire territory during the Civil War, which lasted until 1920.

Sack feels that the Bolsheviks themselves should have recognized the Tsarist debts. But in January 1918, the revolutionary government repudiated these debts, denouncing them as odious.

Sack also considered that the Soviet government should have demanded of Poland, freed from the Tsarist and German yoke after the First World War, part of the debts of the Russian Empire it had belonged to. Sack writes: “Under the terms of the final treaty signed by Poland and the Soviets on 18 March 1921, not only did Poland not assume a part of the debts of the Russian Empire nor pay for the assets it had acquired, but on the contrary it was stipulated: Art. 13: ‘Russia and Ukraine agree to pay to Poland within one year after ratification of the present treaty the sum of 30 million gold roubles in specie and in bars, based on the active participation of the territory of Poland in the economic life of the former Russian state’”. To Sack, this “gift” to Poland goes against the rules in force in international relations.

Calling the legitimacy of debt into question and denouncing it as odious have been regular practices of government leaders who resorted to debt repudiation during the 19th and early 20th centuries. These concrete exceptions to the rule of continuity of contracts between a State and its creditors led Sack to define the conditions for calling a debt odious.

From Sack’s point of view, the goal was to see to it that some order reigned with regard to acts of repudiation and to warn creditors of the risks they took in granting credits that might fall under the criteria for odious debt.

Source and references:

[1] [2] [3] [4] [5] [6] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20]

1 comment:

  1. How did this impact investors of the Trotsky fraction such as Jacob Schiff? Did they loose money on this or where they positioned not to?