Odious Debt in International Law: Are Successor Governments Bound by Illegitimate Sovereign Debt
Arpita Anand | BBA LL.B. (Hons.) | Topic 37
Primary Keyword: odious debt in international law
Secondary Keywords: odious debt doctrine; sovereign debt and State succession; Tinoco Arbitration; illegitimate sovereign debt; successor government debt; Vienna Convention on State Succession; regime debt; international economic law
Key Takeaway
A change of government normally does not create a new State or extinguish the State’s existing international obligations.
State succession is a different legal event involving a change in responsibility for international relations over territory.
The odious-debt doctrine has not been generally accepted as an independent, universally applicable rule of customary international law.
The Tinoco Arbitration is important, but it did not establish a general rule that every debt that fails to benefit a population is unenforceable.
The 1983 Vienna Convention regulates succession to State property, archives and debts, but it did not codify a general odious-debt exception.
1. Introduction
Sovereign debt is ordinarily understood as an obligation of the State rather than of the political government temporarily exercising state power. Accordingly, when one government replaces another while the same State continues to exist, the change of government does not ordinarily terminate the State’s existing international obligations.
The legal question becomes more complicated when borrowing is alleged to have been undertaken by an authoritarian or illegitimate regime for purposes contrary to the interests of the population, or when a genuine succession of States occurs. This is the setting in which the idea of ‘odious debt’ has developed. The doctrine asks, in different formulations, whether certain sovereign debts should be treated differently because of their purpose, use, illegality, or the circumstances in which creditors provided the funds.
The central difficulty is conceptual as well as legal: a change of government, a regime change, and a succession of States are not the same event. The consequences for sovereign debt therefore cannot be analysed through a single formula.
2. Government Change, Regime Change and State Succession
A change of government occurs when the political authority governing an existing State changes. The State’s international legal personality normally continues. A democratic election, a constitutional transfer of power, or even a change of regime does not, by itself, create a new State.
State succession is different. It concerns situations in which responsibility for the international relations of territory changes from one State to another. The 1983 Vienna Convention on Succession of States in Respect of State Property, Archives and Debts was designed for such situations and addresses, among other things, transfer of part of a territory, newly independent States, unification, separation and dissolution. The United Nations records that the Convention was adopted on 7 April 1983 following the International Law Commission’s work. citeturn1search0turn1search3
This distinction matters because a debt incurred by a previous government of the same continuing State is not automatically a question of State succession. It may instead concern governmental continuity, regime debt, contractual validity, domestic authority, creditor conduct, or other rules applicable to the particular transaction.
3. What Is ‘Odious Debt’?
The expression ‘odious debt’ is generally used for sovereign borrowing alleged to have been contracted for purposes that were seriously contrary to the interests of the State or population, or for purposes inconsistent with international law. Different writers have formulated the doctrine in different ways.
During its work on State succession, the International Law Commission considered proposed definitions covering debts contracted for objectives contrary to the major interests of the successor State or transferred territory, and debts contracted for purposes not in conformity with international law. The Commission ultimately did not adopt a general provision creating a separate category of non-transferable odious debts. Its 1981 report records the proposed definitions and the subsequent treatment of the issue. citeturn1search14turn1search16
Accordingly, ‘odious debt’ is better presented as a contested doctrine and legal argument than as a settled, universally applicable rule. Recent scholarship continues to debate whether and how the doctrine can operate within existing international and domestic-law principles. A 2024 Cambridge article notes that the 1983 Vienna Convention did not expressly acknowledge the doctrine, while examining whether equitable approaches to succession can address some of the concerns associated with it. citeturn0search7
4. Is Odious Debt a Rule of Customary International Law?
There is no generally accepted, independent rule of customary international law under which a successor government or State may simply refuse a sovereign debt by labelling it ‘odious.’ The legal status of the doctrine remains contested.
This does not mean that the underlying concerns are legally irrelevant. Questions of illegality, governmental authority, creditor knowledge, fraud, public policy, contractual validity, State succession and equitable allocation may all become relevant depending on the facts and the applicable legal system. But those principles should not be collapsed into a single automatic odious-debt exception.
Academic approaches differ. Jeff King’s work argues for a stronger legal formulation of the doctrine, while other scholarship emphasises its contested status and the limited or indirect ways in which it may operate. This disagreement itself is important to an accurate account of the current law. citeturn0search6turn0search7
5. The Tinoco Arbitration (1923)
The Tinoco Arbitration—Aguilar-Amory and Royal Bank of Canada Claims (Great Britain v. Costa Rica), Award of 18 October 1923, 1 RIAA 369—is frequently discussed in connection with odious debt. The dispute arose after the Tinoco regime in Costa Rica was replaced and the subsequent government challenged obligations and transactions associated with that regime. citeturn1search2
The case should not, however, be reduced to the proposition that ‘a dictator borrowed money and the successor government therefore did not have to repay it.’ The reasoning involved the continuity of the State despite governmental change, the legal authority surrounding the transaction, the circumstances and intended use of the funds, irregularities in the transaction, and what the creditor knew or should have understood about the transaction.
In relation to the Royal Bank claim, the transaction was treated as sufficiently irregular and disconnected from legitimate governmental purposes to prevent the claim from succeeding. The case therefore illustrates why the purpose and circumstances of a particular sovereign transaction may matter, but it does not establish a universal rule that every debt that fails to benefit the population is unenforceable.
6. Regime Debt Is Not the Same as State-Succession Debt
The International Law Commission’s work shows why terminology matters. Its materials distinguish the problem of debts associated with a previous regime from the problem of debt passing in a formal succession of States. The Special Rapporteur noted that, in a succession of governments, the same State may remain the debtor even though a new government refuses or accepts responsibility for the previous government’s borrowing. The same material also discusses the narrower concept of odious debts in the context of State succession. citeturn1search16
Thus, if Government A is replaced by Government B without the creation of a new State, the starting point is continuity of the State. If State X separates, dissolves, unites with another State, or transfers territory so that a succession of States occurs, the rules of State succession become directly relevant.
7. The 1983 Vienna Convention and State Debt
The Vienna Convention on Succession of States in Respect of State Property, Archives and Debts was adopted on 7 April 1983 after the ILC’s codification work. It regulates the effects of State succession on State property, archives and debt and contains different rules for different forms of succession. citeturn1search0turn1search3
The Convention did not incorporate a general odious-debt doctrine. This is significant: the final treaty framework should not be described as codifying a general right of successor States to repudiate debts because they were incurred by a previous or unpopular regime. The 2024 Cambridge analysis likewise notes that the doctrine was not acknowledged in the 1983 Convention. citeturn0search7
Contemporary scholarship nevertheless continues to examine State practice and the relationship between the Convention and customary international law. Arman Sarvarian’s 2025 study identifies a general principle of automatic or default succession to State property and debt in the absence of agreement, while analysing territoriality and equitable apportionment as important principles. citeturn0search0
8. What Factors May Matter in an Alleged Odious-Debt Case?
Whether the borrowing was authorised by the competent State authorities and complied with applicable domestic law.
The actual purpose for which the borrowing was contracted and the use to which the funds were put.
Whether the transaction was genuinely a State transaction or was undertaken for an individual or private purpose.
What the creditor knew or reasonably should have known about the transaction and its purpose.
Whether the issue involves a change of government or an actual succession of States.
The applicable treaty, contractual, domestic-law and international-law rules.
Whether equitable allocation or other succession principles are relevant in a genuine State-succession situation.
9. Arguments Supporting Non-Recognition of Certain Debts
Arguments supporting non-recognition generally focus on exceptional cases in which borrowing was unlawful, lacked legitimate governmental authority, was used for purposes fundamentally contrary to applicable law, or involved creditor conduct that makes enforcement problematic. Supporters also argue that populations should not automatically bear the consequences of transactions undertaken for private or unlawful purposes.
These arguments, however, do not establish a general automatic exception. Their legal force depends on the applicable law and the evidence concerning the particular transaction.
10. Arguments Supporting Continuity of Debt
The continuity approach emphasises that sovereign obligations attach to the State rather than to a particular political administration. Automatic repudiation after every governmental change could increase uncertainty for creditors and make sovereign borrowing more difficult or expensive. It could also create disputes over whether a debt was sufficiently ‘odious’ to escape enforcement.
In genuine State succession, modern scholarship likewise identifies rules concerning the allocation or transfer of State debt rather than a simple presumption that all debts of the predecessor disappear. Sarvarian’s 2025 analysis describes automatic or default succession to State property and debt as a general principle supported by State practice, subject to the particular rules of succession and agreement. citeturn0search0
12. Conclusion
The question whether successor governments should be bound by illegitimate sovereign borrowing cannot be answered through a simple ‘odious debt means no repayment’ formula. The first step is to identify the legal event. A change of government within the same State is different from a succession of States, and a regime debt question is not automatically a State-succession question.
The odious-debt doctrine remains contested and has not been incorporated as a general rule into the 1983 Vienna Convention. The Tinoco Arbitration remains an important historical authority, but its reasoning was tied to the particular transaction and circumstances rather than creating a universal exception for debts that did not benefit the population.
The more defensible approach is therefore contextual: examine governmental continuity or State succession, the authority and legality of the borrowing, its purpose and use, creditor knowledge, contractual terms, applicable domestic and international law, and any relevant succession rules. This approach recognises both the importance of creditor protection and the legal concerns raised by genuinely irregular or unlawful sovereign borrowing without treating the odious-debt doctrine as settled law.
Suggested Internal Links for Lawvaani
State Succession in International Law
Sovereign Debt and International Law
Vienna Convention on State Succession
State Responsibility in International Law
International Arbitration: Principles and Practice
Sovereign Immunity and Foreign Enforcement
International Economic Law
References
International Law Commission, Draft Articles on Succession of States in respect of State Property, Archives and Debts, with commentaries (1981), especially the discussion of ‘odious debts’.
Vienna Convention on Succession of States in Respect of State Property, Archives and Debts (adopted 7 April 1983).
Aguilar-Amory and Royal Bank of Canada Claims (Great Britain v Costa Rica), Award, 18 October 1923, 1 RIAA 369 (Tinoco Arbitration).
Mauro Megliani, ‘The Odious Debt Doctrine: The Equitable Rule’ (2024) 25 German Law Journal 772–796.
Arman Sarvarian, The Law of State Succession: Principles and Practice (Oxford University Press 2025), ch 4 ‘Succession to State Property and Debt’, pp 102–144.
Jeff King, The Doctrine of Odious Debt in International Law (Cambridge University Press 2016).
Source Links
International Law Commission — Succession of States in respect of matters other than treaties: https://legal.un.org/ilc/texts/3_3.shtml
UN Conference materials — 1983 Vienna Convention: https://legal.un.org/diplconf_records/1983_succession/
Tinoco Arbitration — Jus Mundi: https://jusmundi.com/en/document/decision/en-aguilar-amory-and-royal-bank-of-canada-claims-great-britain-v-costa-rica-award-thursday-18th-october-1923
Cambridge — The Odious Debt Doctrine: The Equitable Rule: https://www.cambridge.org/core/journals/german-law-journal/article/odious-debt-doctrine-the-equitable-rule/14F2473673B7730E912A6E6BBEE97CBC
Oxford Academic — Succession to State Property and Debt: https://academic.oup.com/book/59862/chapter-abstract/511400733
Author: Arpita Anand
Bba.ll.b (hons.) student