'Illegitimate' loans: lenders, not borrowers, are responsible

Hanlon, Joseph (2006). 'Illegitimate' loans: lenders, not borrowers, are responsible. Third World Quarterly, 27(2) pp. 211–226.

DOI: https://doi.org/10.1080/01436590500432283

URL: http://www.open.ac.uk/personalpages/j.hanlon/3WQ_i...


Debt relief has focused on the borrower - debt is cancelled if a country is too poor to repay and now has acceptable policies. Iraq shifted the focus to the lender - debt should be cancelled because creditors should never have lent money to the repressive regime. The paper uses domestic and international law to establish the concept of 'illegitimate debt', which should not be repaid independent of the status of the borrower. The concept of 'moral hazard' is used to argue that non-payment of illegitimate debt is necessary to discipline lenders and to prevent future lending to oppressive dictators.

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