By Fadhel Kaboub
(Cross-posted from Al-Ahram)
I read Niveen Wahish’s article ‘Less is more’ (Al-Ahram Weekly, 3-9 November) with a great sense of frustration about the prevalence of the conventional wisdom that tax revenues finance government spending and that “borrowing” is inherently destabilising. If Egypt is going to lead the way in a new era in the Middle East, it must abandon the “sound finance” mythology, which is a relic of the gold standard, and embrace a model of true financial sovereignty. A financially sovereign country prints its own currency, collects taxes in that same currency, and most importantly issues government bonds that are only denominated in that same sovereign currency. As such, Egypt can finance all the national priorities that its people demand. A national debt is always manageable under a flexible exchange rate system and an adequate agricultural and industrial policy. Egypt’s most valuable assets are its people and their ingenuity. The country must also harness support from and cooperation with like-minded nations that are interested in fair trade amongst equals rather than neo-colonialist subjugation. The real burden on Egypt’s economy is the odious debt that was incurred under the Mubarak regime. This debt must be repudiated in the same way that Iraq’s and Ecuador’s debt were. Debt cancellation (not forgiveness) is the least that the West can do today to make up for the ills that Mubarak and his Western supporters have done to the people of Egypt.
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In her 1991 book, "Odious Debts", Patricia Adams explains that the first country to invoke the doctrine of odious debt was the United States. After the US aided Cubans in driving Spain out of Cuba in 1898, the US repudiated debt owed by Cuba to Spain on the grounds that the debt was incurred to benefit the illegitimate regime that ruled Cuba, and not to benefit Cuba per se. The debt belonged to the regime, not to the country. In the 1920s a law professor in Paris, Alexander Nahum Sack, formalized the legal doctrine, writing,"If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the State. This debt is not an obligation for the nation; it is a regime's debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power."Today a similar principle is at work when we reject taxpayer bailouts of bankers who want to "privatize the gains and socialize the losses" of their recklessly shortsighted lending. Bankers made all those bad loans to enrich themselves with fees and bonuses. The loans were not made to serve the interests of the people or the State. Therefore the bankers' bad loans are odious, and taxpayers and their governments have no obligation to assume any of the bad debts.