Definitions from Eurodad, the European Debt and Development Network

Illegitimate debts can be divided into four broad categories: illegal debts; odious debts; illegitimate debts; ecological debts.

Illegal debts are those which do not follow the basic legal norms and procedures of the country that takes on the loan, for example the person that signs for the loan is not authorized by the state to take-out loans in the name of the state or the creditor and debtor do not follow the procedures as stipulated in the national constitution of the debtor country. It is the shared responsibility of both creditor and debtor to ensure that loan agreements follow all legal norms and procedures and those which do not may legitimately be questioned.

Odious debts are defined by three main characteristics: a) the loan did not benefit the population of the debtor nation in any way and indeed the funds may have been used to oppress the people(s) of a nation (absence of benefit) ; b) the population of the debtor nation did not give its consent to the loan (absence of consent); and c) the creditor was aware of these facts and yet proceeded to disburse the loan anyway (creditor awareness). Typically, odious loans are associated with dictatorial regimes such as that of Mobutu Sese Seko in the Democratic Republic of Congo, Ferdinand Marcos of the Philippines, General Suharto of Indonesia, the apartheid regime of South Africa and Saddam Hussein of Iraq.
Illegitimate debt is a much broader category. It applies for example to ill-conceived development projects which should never have been financed in the first place. An example of this is the Bataan nuclear power station in the Philippines. It is the Philippines’ largest single debt. Completed in 1984 at a cost of US$2.3 billion, it was never used because it was built on an earthquake fault at the foot of a volcano. The nuclear power station was financed by the U.S. export credit agency Ex-Im Bank, Union Bank of Switzerland, Bank of Tokyo and Mitsui & Co., all of whom are still being repaid.

Ecological debts are those which caused untold environmental damage in the debtor nation (and the creditor was aware of the negative impacts which would follow on the local environment and/or local populations). In addition, many civil society organizations believe the North owes a huge “environmental debt” to the countries of the South because the countries of the North are responsible for most of the world’s environmental concerns, such as carbon emissions which are leading to global warming.