ABSTRACT
This chapter lays out a mechanism to limit the ability of dictators to run up debts, loot their countries, and pass on their debts to the population. The population benefits when it is protected from being saddled with “odious debt.” Limiting an odious regime's ability to borrow can be considered a new form of economic sanction that has several attractive features relative to traditional trade sanctions. An obviously important question in implementing the doctrine of odious debt is which institution would judge odiousness. If the foreign aid were valuable enough, successor governments would have incentives to repudiate odious loans, so banks would refrain from originating such loans. If a dictator stays in power for longer, banks might issue short-term loans as long as they believed that the dictator would be in power long enough to repay the loans.
