By Nuría Molina,
The Charter aims to go beyond a do-no-harm approach by outlining standards to ensure that lending and investments actively deliver positive development outcomes.
The global financial crisis will leave lasting scars on the global financial system and will have protracted impacts on poor people across the world.
While financial inflows to developing countries after the crisis are increasing but so are outflows. In the absence of binding responsible financing and investment standards, private capital inflows to developing countries are still offset by debt repayments, foreign investment profit repatriation, and illicit financial flows.
In addition, access to external finance for developing countries is uncertain. The renewed search for financial returns means that there is currently an increase in short-term and volatile private capital flows. Without a framework of binding standards for sovereign and private investments, there is an increased risk that these lending and investment practices are irresponsible. Without the future implementation of such a framework, this risk will only increase.
In light of this, Eurodad’s Charter on Responsible Financing – as tabled in Part Two of the paper – proposes contractual changes to loan and investment contracts to ensure that they contribute to a decent and equitable future for the people of developed and developing countries. These changes aim to help improve the quality of lending and investments in developing countries, and prevent future illegitimate and unsustainable debt and harmful impacts of foreign investment.
The Charter covers standards that should apply to external lending and foreign investments in developing countries that have a developmental purpose. This comprises loans and direct investments by development institutions or private lending and investments that count on financial support or guarantees by development institutions. Most of the standards of the Charter could also apply to private lending and investments even when they are not backed by development institutions. Therefore, Eurodad invites private lenders and investors to align their practices to the standards of this Charter.
The Charter is also applicable to lending to and investments in developed countries. However, Eurodad has chosen to specifically focus on the responsibility of financial flows to developing countries, where legal frameworks and enforcement mechanisms for responsible external lending and foreign investments are often weaker than in developed countries.
The principles in the Charter aim to go beyond a do-no-harm approach by outlining standards to ensure that lending and investment actively deliver positive development outcomes. To this effect, the essential components of a responsible loan and investment contract as outlined in the Charter aim to ensure that:
• the terms and conditions are fair, and the process is legal and transparent;
• the human rights and environments of recipient nations are respected,
• loans and investments contribute to the effective development of recipient nations,
• fair taxation rules are respected,
• procurement is transparent and effective for development,
• loans and investment count on public consent by affected populations, and that
• many possible future problems are pre-empted and that repayment difficulties or investment disputes are resolved fairly and efficiently.
More than ever a responsible finance framework is needed to ensure a decent and equitable future for the people of developed and developing countries. The principles, mechanisms, and proposals are out there. Putting them into practice just takes courageous and decisive political will.
Download the full charter here Responsible Finance Charter
In Spanish Carta de Financiación Responsable
In French Charte pour un financement responsable