9-Introducing "Cuba's Caribbean Marxism: Essays on Ideology, Government, Society, and Economy in the Post Fidel Castro Era" ("Sovereign Finance, Odious Debt Doctrine, and Reform")

I reported the publication of Cuba’s Caribbean Marxism: Essays on Ideology, Government, Society, and Economy in the Post Fidel Castro Era (Little Sir Press 2018; ISBN: 978-1-949943-00-9 (pbk); I SBN: 978-1-949943-01-6 (ebk)) (here). Cuba’s Caribbean Marxism is the first offering through Little Sir Press, a self-publishing collective that is a new project in broader knowledge dissemination of the Coalition for Peace & Ethics (more about that project here). Join us! 

Cuba’s Caribbean Marxism eBook may be accessed through these sites:


     

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I promised that over the course of future posts I would be introducing readers to the book. This post continues with an introduction to Chapter 7 ("Sovereign Finance, Odious Debt Doctrine, and Reform"),  which follows below.  Here for access to other posts in this series.  HERE for the video recording of the launch event for Cuba's Caribbean Marxism: Essays on Ideology, Government, Society, and Economy in the Post Fidel Castro Era, which took place 12 November 2018 at Penn State

 

Sovereign Finance, Odious Debt Doctrine, and Reform

      Chapters 2, 5 and 6 examined the centrality of ideology in the framing and understanding of reform efforts in Cuba. Chapter 3 then considered the Leninist institutionalization of the ideology that has been developed for the PCC that emerged after the triumph of the revolt against the last non-communist dictatorship in Cuba. Lastly, Chapter 4 considered the manifestation of ideology in crucial reform initiatives. The principal focus of those chapters was on the construction of the theoretical framework within it was possible to conceive of socialism in Cuba, and the way that theory then provided the perspective through which law, economics, and society could be understood and operated. But the development of an internal social and political order driven by the imperatives of ideology also has important ramifications for Cuba’s foreign and international relations.  This chapter considers the way that Cuba has elaborated a theory of international relations around its rejection of the logic and principles of contemporary globalization. 

         To that end, it is worth starting with ideas. In the context of Caribbean Marxism and its outlooks, this is a crucial starting point. Indeed, that appears b¡to be the most revealing insight of the first six chapters;  within Caribbean Marxism, it is as important to think about the “reality” of ideas and concepts that shape law and policy, as it is to determine the real facts underlying these. Ideas and frameworks for thinking about policy can sometimes take hold in a way that they alter the approaches people are willing to consider in shaping policy. In this respect, “ideas” can sometimes be more “real” than any underlying set of facts uncovered by diligent work. Over the course of the last half century, Fidel Castro and his “ideas shop” in Havana have become a significant player in the production of ideas that serve as a framework for policy analysis. Since his guerrilla days in the mountains of Cuba Fidel has considered the incarnation of the ideas of the Cuban Revolution, saved from death early in the revolution for this very purpose.

Recordaba aquello que decía el oficial que estaba al frente de los soldados cuando me capturaron después del ataque al Moncada, una frase que no sé de dónde la sacó, pero la sacó y la tenía bien en la cabeza—Sarría se llamaba, un oficial negro, alto, cuya conducta firme evitó que aquella gente ajustara cuentas con nosotros rápido: “Las ideas no se matan, las ideas no se matan,” lo repetía. Ahora se les puede decir a aquellos que estaban tan de fiesta y tan alegres cuando se derrumbaron la URSS y el campo socialista: “¡las ideas no se matan!” (Castro 1995) [I remember what was said by the official who stood at the head of the soldiers who had captured me after the attack on the Moncada Barracks, I don’t know where he got the phrase, it was stuck in his head.  His name was Sarría, a tall Afro-Cuban official, whose firm conduct suggested that they would even accounts with us in short order.  “Ideas cannot be killed,” “One ought not kill ideas” he repeated.  Today one can say who are celebrating with glee the collapse of the Soviet Union and the socialist camp: “Ideas cannot be killed.”].

This story was repeated over and over during the course of Fidel Castro’s leadership.  It served as an anthem central to the production of “analysis” in the global market for knowledge frameworks, within which the Castro regime has competed well. (Castro 1999). Whatever the merits of the ideas advanced, whatever their “Truth,” they become important when embraced by people and institutions beyond the borders of Cuba, and especially when embraced by individuals with the authority to act. (Backer 2006b). Indeed, to a great extent, it has been the ability to disrupt the factual triumph of the West—lurching toward democratic, open society, rule of law, more or less open market globally linked societies—that has been one of the great intellectual triumphs of the Cuban Revolution. And that, indeed, is the point I will make here—control of frameworks tend to be as important as the generation of data and to have substantial policy effect—whatever the “real” merits of the ideas advanced. (Backer 2006a).

One of the more important areas in which Fidel Castro has sought to affect the framework for policy analysis (and for understanding the “facts” on which they are based) has been with respect to the global financial system in general, and with the global system for lending to sovereigns in particular. Sovereign lending is generally understood as a legal problem of contract. (Bratton & Gulati 2004; Khoury 1985). To the extent sovereign lending presents a regulatory problem, its solution tends to be considered within a context of global markets for goods, services and capital requiring some sort of disciplinary mechanism for states and their creditors to ensure the integrity of markets. (Franck 1990, 145–48).

The international financial community has long profited from the current framework of sovereign lending. It may engage in lending to any recognized regime, it may make such loans without any obligation to engage in any due diligence, other than that thought prudent for the protection of their investment. Such loans are negotiated with the agents of the state, but remain the primary obligation of the people. In the best of all worlds, this system works well enough. Citizens ought to be responsible for the actions of their agents. (Backer Feb. 16, 2007).

The doctrine of odious debt has provided a sort of safety valve for this system of sovereign lending. The odious debt doctrine traditionally focused on the circumstances under which a successor state or states could avoid the obligation to pay the debts incurred by a now-extinct predecessor state. (Reina 2004, 592–99; Julard 1998, 67–86). “Usually, repudiations occurred in the context of revolutionary regime changes. A typical example is the repudiation of the external debt contracted by the Mexican emperor Maximilian by the republican government of Benito Juarez in 1866 after the overthrow of Maximilian.” (Sutter 1992, 81). Or, less often, on the obligations of successor governments to repay the obligations of prior regimes (especially when succession occurred after civil wars, revolutions, or other contests for control of the state apparatus). (Volkovitsch 1992, 2165).

This doctrine had three principal effects. It reaffirmed a presumption of payment, shifted the burden of proving entitlement to relief onto successor governments, and limited the sort of conduct that could constitute grounds for avoidance. Essentially, public debt could be avoided when it could be shown that it was essentially private, but only if the lender had knowledge of the use of the funds. Nonetheless, governments have been tempted by the possibilities of this doctrine. The United States, for example, had sought to invoke the doctrine to avoid the debts of the Saddam Hussein regime (Anderson 2005, 431–41; Gelpern 2005, 400– 02), and they have not been alone. And much discourse over the last twenty years has sought to significantly expand the reach of the doctrine to avoid debt, especially debt owed by developing states. This expansion involves a transformation of the doctrine form a tool to avoid retreating powers from imposing their debt on their victorious adversaries, to one grounded in notions of the advancement of human rights (understood in its increasingly legal sense), the avoidance of corruption and the implementation of an ethics of development. This discourse has focused on issues of public benefit, the responsibility of lenders to avoid loans to repressive regimes or to avoid becoming complicit in violations of human rights by such regimes, and an extension of the doctrine to a wider group of public contractual obligations. (Ochoa 2008).

It is at this point that odious debt notion has assumed a new guise. The principal architects of that reconception of odious debt could be found in Fidel Castro’s “ideas shop” in Cuba. The object is not so much to expand odious debt doctrine as to use it to discredit the current global financial system within which the doctrine operates. (Castro 1999). For that purpose, the idea has been developed that suggests that the focus of odious debt doctrine ought to be reversed. But the principles of odious debt doctrine have also been turned on the sovereign lending system itself. Some have argued that the modern system of private orderings, of global capital in the service of undefined global markets, serves to benefit creditor states to the ruin of borrower states. As an integral part of the modern system of economic globalization, sovereign debt is imposed as a coerced subsidy by developing states for global over-production at the heart of the so-called neo-liberal system, that is the contemporary system of global economic ordering. In its contemporary form, such sovereign lending is designed to produce a substantially infinite stream of payments, like that extracted from consumer credit card transactions with very high interest payment terms and very low monthly payment obligations. Sovereign lending also evidences an increasingly prevalent mode of legislating—through contract. The conditions to loan agreements have effectively constrained the sovereignty of debtor states. Loan terms have been said to effectively transfer control over public policy from the domestic polity to the international lending community—market, states or international lender organizations.

Rather than presuming legitimacy and requiring states to prove otherwise, they would look to the legitimacy of the loan itself. If the system of sovereign lending is part of a larger system that is itself tinged with illegitimacy, then debts generated under such system might be discredited as well. If sovereign loans are made principally for the benefit of the lender, and produces negligible benefit for the coerced debtor state, then, it is suggested, such debts might be illegitimate as an obligation of those states (though not necessarily an illegitimate obligation of the functionaries who entered into such loans on behalf of those states). “Essentially, the doctrine shifts the focus of analysis from the borrowing regime (and its obligations to repay its debts) to the global financial systems through which lenders operate. It starts from the presumption that, like states, global capital systems must distinguish the system, which emanates ultimately from the people of the globe, from its apparatus (or governance system), which is legitimate only to the extent its authority is legitimately derived and used.” (Backer 2007). It is in this context that the popular critiques of the control by the IMF, the World Bank, or global credit markets of debtor states acquires its legal form.

The merits of Castro’s ideas are not the focus of this analysis. The point is to describe their character and potential effects. That description, in turn, suggests the way in which the internal ideology of Caribbean Marxism can powerfully affect Cuba’s perspective on global affairs, and shapes the form of Cuba’s interventions in international affairs. The irony is, of course, that this is occurring despite any “truth” about the underlying merits of the ideas. The perversity follows; those who are most affected by it, the purveyors of the modern free markets-based global system dismiss Castro’s approach as meritless and then treat them as if they had never been raised, even as Castro creates a strong framework for analysis alluring to those looking for any way to discredit the rising system of globalization. Indeed, whether or not Castro’s economic analysis has any merit, the rhetoric of that analysis has struck a chord in the policy arena, and especially with important actors within developing states. While this form of odiousness in a new guise has not acquired a general acceptance, a number of its assumptions about the global system of sovereign lending have made their way into public discourse at the international level. Especially in the form of the effects of sovereign lending on the borrower, the democracy limiting effects of structural adjustments by contract, corruption, and the complicity of lenders in legal violations by borrower governments, the effect on sovereign lending regimes are likely to be felt in changing approaches to notions of legitimacy in lending, and the obligations of lenders in making sovereign loans.

This Chapter, parts of which draws on prior work (e.g., Backer 2006; Backer 2006b), suggests the context and importance of these arguments about sovereign borrowing and its status as legitimate or illegitimate. It suggests the ways these notions of legitimacy have become important in thinking about the extent of a state’s power to repudiate its obligations, as well as the way illegitimacy notions have been conflated with anti-corruption and pro-democracy campaigns. These notions will play a greater role in sovereign financing in the years to come and use a post Castro Cuba as an example of the way in which such arguments could be deployed to absolve the state of both its pre and post Fidel Castro Cuban sovereign debt. The Chapter will suggest that the application of principles of Caribbean Marxism to the problem of sovereign lending may also be good for the business that Caribbean Marxism condemns. That is, that even as recharacterized, a Caribbean Marxist view of odious debt is good for the business of modern global capital markets in general, and for the business of lending to sovereigns, in particular.

The Chapter starts with a short summary of the current context in which odious debt doctrine is understood. The Chapter then describes Castro’s gloss on the idea of sovereign and odious debt. It considers his notion of systemic illegitimacy and suggests an application of these notions to the post-Castro context of Cuba. It’s most interesting application may be on the foundations of economic globalization and the founding premises of global trade rather than on the more narrow notions of sovereign lending. The Chapter closes with a discussion of the ramifications of Castro’s attempt at this muscular redefinition of odiousness that may actually serve to strengthen the global system of sovereign lending.