How to Tackle Venezuela’s (and the World’s) ‘Odious Debt’ Problem

Excerpt

Nicolas Maduro is gone in Venezuela, but the country is a wreck—vast numbers of its people have fled, its infrastructure is in ruins, and it is drowning in debt. A return to democracy is vital for the Venezuelan people, for Western Hemisphere stability, and for American interests, including meaningful American investment. But any new democratic government would struggle to survive under these economic headwinds. For democracy to take root once again in Caracas, re-establishing a baseline of economic stability is key. A new take on the old concept of “odious debt” could help.

Venezuela’s Odious Debt Problem

Venezuela’s government faces approximately $150–$170 billion in external debt. Venezuela’s GDP, by contrast, is only about $120 billion, with some credible estimates as low as $80 billion. While some of Venezuela’s debt is legitimate, a significant portion is simply the product of corruption, self-dealing, and authoritarian abuses. 

Maduro and his cronies borrowed wildly, often using funds to pay for repression rather than development. Loans were often secured with bribery rather than popular consent. China, in particular, lent enormous sums to the Venezuelan regime through opaque, corruption-tainted, and oil-backed agreements that delivered few benefits to the public. Why should Venezuela’s people be forced to repay corrupt loans that funded their own persecution, arbitrary detention, starvation, and torture?

Economists call this “odious debt.” The doctrine of odious debt holds that obligations incurred by a regime to repress its population or enrich its leaders should not bind the public once that regime falls. 

Josh Birenbaum is deputy director of the Center on Economic and Financial Power at the Foundation for Defense of Democracies, where Daniel Swift is a research analyst.