Mubarak’s Odious Debts

Saifedean Ammous in Project Syndicate:

Egypt’s public debt is around 80% of GDP, very close to the 90% level that economists Kenneth Rogoff and Carmen Reinhart identify as a harbinger of slower growth and heightened vulnerability to financial and fiscal crises. Egyptians need only glance north, at the European debt crisis, to understand they should sort out their debt problem now, rather than waiting until it reaches Greek proportions.

This debt was incurred during the 30-year reign of the deposed president, Hosni Mubarak. In international law, debt that is incurred without the consent of the people, and that is not used to their benefit, is referred to as “odious”; as such, it is not considered transferable to successor regimes. The reasoning is simple and logical: if someone fraudulently borrows money in my name, I am not expected to pay it back, and neither should a country’s population when an unrepresentative leader borrows in their name and to their detriment.

For three decades, Mubarak’s borrowing only enriched him and his ruling clique while impoverishing and repressing the rest of Egypt. Corruption was rife, but not just the covert type: public money was openly used to support many businesses under flimsy pretexts like “fostering economic growth” and “creating employment.” Along with regulatory capture, this harmed competitiveness, market openness, and Egypt’s small and medium-size businesses.

The beneficiaries of this largesse are now mostly sitting in prison awaiting trial. The rest of Egypt, however, only felt this money in the form of an ever-expanding state apparatus that solidified Mubarak’s rule, crushed dissent, and repressed millions. When Egyptians rose up against Mubarak in January, they were confronted by weapons paid for with borrowed money.

More here.