Tag Archives: debt

The World Social Forum reviews debt and taxes: who pays, who profits and why?

Posted on by
Reply

By Bodo Ellmers

While most of the world’s population was reeling from one of the globe’s multiple crises, social movements and non-governmental organisations (NGOs) gathered at the World Social Forum (WSF) in Tunisia last month in search of alternatives. The country where the Arab Spring started in late 2010 was a great choice to host the WSF in 2013. Inspired by the successful campaign to overthrow the autocratic regime of Ben Ali three years ago, Tunisian civil society is amazingly active, highly motivated and convinced that civil society activism can actually make social change happen.

Tunisia: microcosm of a defunct financial regime

However, the Tunisian experience also shows that activism on a national level needs to be complemented by international solidarity and cooperation because nations that are integrated into a globalised world economy have limited space to determine their development. A mountain of external debt taken out by the former regime today is threatening public service delivery and constraining Tunisia’s progress. The tax system inherited from the Ben Ali regime is unjust and includes loopholes for tax avoidance and capital flight. Tax income is insufficient to finance even the current public affairs, causing high and additional borrowing needs to avoid austerity policies.

A balance of payments crisis looms as investment, export production and tourism in particular have been badly affected by concerns about instability. Tunisia is currently negotiating a loan agreement with the International Monetary Fund. Just a few years after the Ben Ali regime was overthrown, a new player that is not democratically elected and mandated by the Tunisian people is playing a substantial role in the nation’s economic and social prospects.

Tax-debt-development finance: promoting alternatives

One of the questions that concerned activists at the WSF was how to get out of the current mess – where governments depend on financial markets to fund public services, and nations depend on external lending to fund their development. These questions are inextricably linked to debt and taxes, which has been at the core of Eurodad’s work for many years. So we pushed the debt-tax-finance agenda in order to develop alternatives and promote new thinking.

Tax justice: Who pays matters

That domestic resources should play a stronger role in public and development finance became a global consensus position recently as the OECD aid industry is running out of steam, and even formerly aid-dependent countries’ governments are getting increasingly tired of foreign funding that comes with too many strings attached.

For the civil society activists gathered in Tunis, however, the question of tax justice is the primary concern. Regressive tax policies and loopholes for tax avoidance and capital flight caused the current situation – where poorer populations pay more than their fair share to national and global public goods. Consequently, the actions needed to create tax justice – in more technical terms: progressive taxes and tax rates; shutting down tax havens; automatic exchange of tax information; country-by-country reporting; and disclosure of real ownership of corporations – featured highly on the 2013 WSF agenda, including in its final tax declaration. Which reassures us at Eurodad that we are on the right track.

Debt: who shouldn’t pay matters too

But since public debt levels in many countries of the global north and south are high and surging, and governments’ debt service is ever increasing, there is a risk that the tax regime will become an exploitation mechanism – that governments will use citizens’ tax payments for the benefit of creditors rather than citizens. So, while tax income needs to go up, debt levels need to come down to make public finance work for everyone.

Activists in Tunis challenged the current creditor-biased debt regime with the slogan “we don’t owe – we don’t pay” – and promoted a variety of exit options from the straitjacket of debt dependency that has trapped many people around the world. Among these options were comprehensive debt work-out mechanisms and debt audits that would unveil and assess the origins and legitimacy of debt.

A debt audit is currently being debated in Tunisia, with the support of local activists. The findings might provide interesting insights for responsible financing and into the question: what happened to all the money that Western banks and international financial institutions generously lent to former dictator Ben Ali, and why did they lend it to him in the first place?

Cyprus – the next chapter of dysfunctional EU debt crisis management

Posted on by
Reply

By Costas Todoulos and Bodo Ellmers 

After more than a week of messy negotiations, the Troika (made up of the European Union, the International Monetary Fund and the European Central Bank) and the government of Cyprus agreed on a bailout package for Cyprus on 24 March. Cyprus is set to receive a €10 billion loan, on the condition that it shrinks its financial sector and implements austerity policies. Private bank deposits above €100,000 will be taxed at 40% in order to raise the additional €5.8 billion needed to stabilise the country’s de facto bankrupt banks.

Euro banking crisis chapter four  

Cyprus has become the fourth European nation to fall victim to a banking crisis that was caused by irresponsible lending and lax financial regulation – following on the heels of Iceland, Ireland and Spain. Cyprus’ status as a de facto tax haven also played a role in attracting huge amounts of foreign deposits, mainly from Russia and the UK, which inflated the banking sector to such an extent that lending reached 900% of Gross Domestic Product (GDP) in 2011.

Dysfunctional debt crisis management

As the bubble burst and Cypriot banks teetered on the verge of bankruptcy, the EU tried to avoid a disorderly default. However, the chaotic crisis management tragedy we witnessed over the past few weeks was obviously everything but an orderly debt work-out procedure. It is a striking fact that, five years into the Euro crisis, the EU has still not developed clear criteria, mechanisms and institutions to deal with debt crises in a fair and transparent manner.

EU crisis management continues to be a rather random process. Dodgy decisions are made in backrooms, with no transparency and accountability to the European citizens who ultimately have to foot the bill – either because they live in crisis countries and have to suffer from austerity programmes, or because their tax payments will ultimately fund the bank bail-out deals.

Severe governance gaps

Little support have come from the global level as the international financial architecture still lacks effective debt work-out mechanisms, a point that Eurodad and other debt campaigns criticised again and again over the past decade when developing countries suffered from debt crises. Such a debt work-out mechanism would be independent from creditors, cover all categories of debt and make binding decisions for all, in order to find a sustainable solution to debt crises as they arise. It would also assess the legitimacy of creditor claims, and pursue a human rights-based approach to debt restructuring, thus ensuring that public spending for essential services is safeguarded. The Cyprus case provides new evidence about how urgently such a new debt work-out mechanism is needed.

Towards evidence-based crisis management

The time has come for an evidence-based debt work-out. Cyprus received harsh treatment at the hands of its European partners, as they argued the crisis was self-inflicted. The small Mediterranean island has been the preferred destination of many overseas depositors over many years. Banking secrecy was high, tax rates were low. KPMG ranked Cyprus’ corporate tax regime as the most attractive in Europe. Some nicknamed the island the ‘unsinkable washing machine’, given that the origins of the deposits were in many cases unclear and illicit flows may have contributed a substantial share to its bad reputation.

A thorough debt audit would have shed clearer light on the origins of Cypriot debt and the Cypriot debt crisis. It would also have supplied decision-makers with better information for making sound decisions. Not least, it could have traced where all the money ended up and who profited from it. This should have been a prerequisite for fair burden sharing in crisis management, and for protecting the ordinary Cypriot citizens and EU taxpayers from footing the bill for a crisis they did not cause.

Safeguarding development from debt

The solution that was chosen for Cyprus will have negative impacts for the country’s population and development in future. The imposed austerity programmes will affect the living conditions of ordinary Cypriot citizens, in particular the most vulnerable people who are dependent on public services. Moreover, while the EU rightly stressed that the economic future of Cyprus cannot be based on a bloated financial sector, it forgot to provide an alternative. We have had better proposals for debt crisis management in a developing country context, where the international community asked affected countries to draft national development plans, and committed to support their implementation.

The solution chosen for Cyprus is neither optimal from a developmental point of view, nor is it sustainable. The bail-out loan will drive up Cyprus’ debt by an additional 60% of GDP, while GDP is expected to shrink due to the harsh austerity measures. It is just a question of time when the next round of crisis management is due. The only good news is that the EU will soon get its chance to prove it can do a better job next time.   

Eurodad-Glopolis International Conference: Debt, finance and economic crisis

Posted on by

by Alessandra Garda

The current public debt crisis compromises development objectives and poverty eradication across the world. How should we move from discussion of root causes to focus on solutions? What should the roles of the state and the private sector be in overcoming debt crises and creating alternatives? How do we need to change our thinking and economic structures to prevent future crises?

The Eurodad biennial conference – which takes place in Prague from the June 3-5, 2013 – offers the perfect opportunity for thorough discussion of the concerns outlined above and to prepare the ground for future joint strategising and thinking on crucial issues of finance and development.

Co-organised by Eurodad Czech member Glopolis, the conference is a leading forum for discussion, idea-sharing and collective strategising for civil society groups advocating for reform of development finance. The Eurodad conference will bring together more than 100 leading civil society thinkers from around the globe working on issues ranging from debt, tax justice, aid, private finance, the International Financial Institutions (IFIs) and global monetary reform. There will be significant Eastern Europe and Southern participation.

Focus on solutions

The debate this year will be focused not only on the consequences of the world economic crisis but mainly on the solutions. By the time of the conference, an increasing number of developed and developing countries are likely to have suffered further debt distress, with negative consequences for their economies and people. EU countries will face decisions about collectivisation of national debts – implying stronger EU regulatory, fiscal and political union or national defaults and possibly Eurozone break-up. The Eurozone debt crisis threatens further regional – and possibly global – recession with obvious consequences for public debt accumulation.

The root causes of the current public debt crisis are multifaceted, and much debated. Many argue that rising public and private debt levels have been driven by the increasing dominance of the financial sector over the real economy. History shows us that financial crises are always followed by public debt problems as the public sector underwrites losses and economies suffer. But the roots of this crisis – and previous crises – go deeper, and it is clear that major change is needed to overcome this crisis and prevent future recurrences. But what kind of changes?

What can be learned from countries that have weathered the current crisis well? Which proposals for change should civil society groups be emphasising now? This is a topic that is extremely relevant in North and South, East and West – and the conference can provide a forum for genuine sharing of experience and ideas. It’s time to take us beyond analysis of the problems to a focus on solutions.

Eurodad’s biennial conference has been held at least every two years for more than a decade, offering Eurodad members, allies and partners the opportunity to broaden understanding of key issues, identify and move forward on collective struggles, forge new alliances and meet inspiring people.

Find out more about the conference here.

Support Argentina in the struggle against Vulture Funds

Posted on by

Diálogo 2000, member of Jubilee South America, has released the statement “The real debt is to the rights of the people of Argentina“ in defense of the rights and sovereignty of the people of Argentina in the face of recent vulture funds actions.

The retention of the frigate Liberty in Ghana, and the recent New York court decisions ordering the country to pay new multimillion dollar sums to Vulture Funds, reveal the persistence of a serious debt problem that continues to condition the present and future of Argentina. As the Dialogo 2000 statement reads “in the most immediate, what is at stake is a new payment equivalent to more than the entire Argentinian national budget for housing and urban development during the year 2013, to speculative funds that never invested in the people´s welfare nor did they accept to restructure their claims after the economic collapse and suspension of debt payments in 2001″. This is a new case, among many, of “unethical and unscrupulous” actions of so-called vulture funds. In 2010 a US judge froze Argentinian central bank assets in New York when ruling on another Vulture Fund case against Argentina. In another recent case, the UK’s privy council surprisingly ruled against vulture fund FG Hemisphere in a case brought against the Democratic Republic of Congo’s state mining company.

Dialogo 2000 rejects the decisions of the New York court “that does not take into consideration the fraudulence, illegality, and illegitimacy of the process of Argentine indebtedness, totally unrelated to the interests of the people”. The statement calls for a public, comprehensive and participatory debt audit; the cancellation of unconstitutional contracts and agreements that establish the resignation of national sovereignty  the confrontation of speculators challenging the illegitimacy of their claims; and the prosecution and punishment of those who illegitimately and unconstitutionally issued bonds, renouncing the country’s sovereignty and the rights and heritage of its people.

The statement, released on the Human Rights Day, December 10th, has got 158 endorsements from civil society organisations and personalities from all around the world. Organisational endorsements to the statement may still be sent to: dialogo2000@jubileosur.org

Read the statement in english

El manifiesto está también disponible en español 

Progress on IMF conditionality?

Posted on by

A first reading of the press statements and overview paper from the IMF’s review of conditionality, completed in September 2012 might give the impression that the IMF has made a 180 degree turn in its conditionality policy, one of the most controversial aspects of the Fund’s role. However, the transformation doesn’t seem as complete as the IMF argues. Harmful conditions are still being imposed, not only to developing countries, but also in Europe, and the IMF claim to have increased its focus on poverty reduction and social protection seems uneven, both throughout countries and time.  Has the IMF really change the way it sees and implements conditionality?

As a thoughtful reading of the conditionality review papers shows, lending reforms and changes in conditionality have already had some impacts in the way the IMF deals with countries under different Fund programs, but much more can and must be done.

The IMF claims for instance to have internalized the objective of poverty reduction in the programmes in low-income countries, but outcomes seem uneven. They recognise that there’s a need for a better and more systematic analysis of social impact of policy measures in programmes. One of the main challenges remaining is therefore to monitor and evaluate, both quantitatively and qualitatively, the impacts of IMF policies in the most vulnerable people.

As the review concludes, debt relief is responsible for the only observable macroeconomic positive effects of IMF policies in low-income countries, including not only sustainable debt levels, but also an increase in social spending. In a time when, after HIPC and MDRI, there will not be a specific debt relief initiative in place for those countries in debt distress, and the chances for having a new debt crisis, not only in Europe but also in the global South, are growing, there’s also an urgent need to evaluate what will happen when no further debt relief is a resource for impoverished and highly indebted countries.

Furthermore, and as the IMF recognises, more efforts in ownership and transparency are also vital for the programmes success, and a better analysis on projections and evaluation would also help. The role of CSOs in monitoring and fostering these transformations is vital for assuring further change within the IMF. Some changes are certainly happening, mostly at a slower pace than what is needed. But the IMF has still a long way to go to be a fully democratic, transparent and efficient institution with no harmful conditions imposed on the countries.

The following briefing analyses these and other issues that arise from the IMF review of conditionality.

How it could work – The alternative to the traditional debt relief processes for Zimbabwe – an illustration

Posted on by

Eurodad member Erlassjahr has released a new paper on how a Fair and Transparent Debt Workout mechanism could work in the case of Zimbabwe.

For the last decade the Zimbabwean government has been in default on most of its debt, currently estimated to be around 7 to 9 billion US Dollar. It is not the first and will not be the last country in the world to default on external debt. Europe today shows that northern industrial countries can also become unable to meet all their debt service payments. Other more recent examples may include Cote d’Ivoire in February 2010 or Jamaica in 2010. Sovereign debt defaults have been normal phenomena for millennia.

However, there is no established law that enables the state to demand the cancellation of debt obligations. In case it would declare insolvency it will be seen as “unwilling” to pay, not as “unable”. In the context of developing countries, one can find the HIPC and MDRI initiatives, the Debt Sustainability Framework of the IMF and negotiation fora such as the Paris Club. But those instruments do not address state insolvency as recurring phenomena of national economies. Moreover, not having a good way of dealing with sovereign debt and a sovereign debt crisis, make sovereign debt crises likely to recur.

The report is the result of a project on “simulating” an alternative debt workout for a country case, in order to demonstrate that alternatives to traditional creditor-dominated procedures are actually possible. Zimbabwe as a currently over-indebted country has been chosen as an example to show an alternative debt workout process as an alternative to HIPC. The paper illustrates a flexible arbitration process that encompasses a sufficient debt reduction through a fair sharing of losses among all parties aligning the country’s total debts to its real capacity to pay. Such an arbitration process would be driven by the aim to restore Zimbabwe’s debt sustainability.

The illustration of how a flexible process as an alternative to the traditional debt relief processes could look like in Zimbabwe is based on the step-by-step guide developed by Jürgen Kaiser, Erlassjahr coordinator, “Resolving Sovereign Debt Crises: Towards a Fair and Transparent International Insolvency Framework”. The result is a concrete step-by-step simulation on how an impartial and fair process could look like or work in the concrete case of Zimbabwe.

Download the full report: How it could work – The alternative to the traditional debt relief processes for Zimbabwe – an illustration 

Norway takes a bold step towards debt justice: First creditor ever to carry out a debt audit

Posted on by

Brussels, 15 August 2012

Today the Norwegian Minister of Development Heikki Holmås announced that Norway will make an assessment of the legitimacy of developing countries’ debt to Norway. This means that the Norwegian government will be the first to ever carry out a creditor’s debt audit.

Gina Ekholt, Director of SLUG, the Norwegian Coalition for Debt Cancellation, said: “This is a historical day! Not only for debt campaigners who have been fighting for this for years, but also for the people across the world that are suffering from unpayable and illegitimate debt burdens. This is an important tool to promote responsible lending and to take responsibility for past loans. We hope that other creditors will be inspired by Norway’s debt audit.”

Since being elected in 2009, the Norwegian government has promised to carry out a debt audit, as well as working to establish binding guidelines for responsible lending. Today, Holmås promised that the audit will now be launched, to be followed up with new and stronger guidelines for responsible lending. 

Øygunn Sundsbø Brynildsen, Senior Policy and Advocacy Officer at Eurodad, said: “The ongoing global financial crisis is only one example of the devastating consequences of reckless lending. Today’s initiative has the potential to be a game-changer in the move towards more responsible finance. We hope other countries will be bold enough to follow Norway’s lead towards policies that can help avoid future unjust debt burdens.”

The Norwegian government has previously admitted their responsibility as a creditor for dirty debts attached to a particular set of loans for developing countries to buy Norwegian ships. In 2006 the government announced that they would cancel debts for seven countries because the original loans had been a “development policy failure”.

The Norwegian Coalition for Debt Cancellation (SLUG) has done its own investigation of debts owed to Norway. The research reveals that a part of Indonesia’s current debt to Norway is clearly illegitimate. SLUG shows that the people of Indonesia is still paying for a wave power plant that was never built, and failed technology for sea monitoring systems.

In the UK, the UK All-Party Parliamentary Group is conducting an inquiry into UK Export Finance, part of the Department for Business, which backs loans to foreign companies and countries to buy British exports. Norwegian Christian Democrat MP Hans Syversen MP gave evidence to the inquiry, saying of the ship export loans: “we had to acknowledge that this procedure was quite hurtful to the people that we thought we did something good to and even the ships that were built were not of good quality.”

Tim Jones, Policy Officer at Jubilee Debt Campaign in the UK, said: “Norway is yet again setting a fantastic precedent that lenders are responsible for the debts they create. The Liberal Democrats have similarly pledged to carry out an audit into debts owed to the UK. But Vince Cable has refused to do so, despite being in charge of the department responsible. People in Iraq, Indonesia and Egypt are today repaying loans to the UK government given to past dictators for military equipment.” 

Norwegian initiatives have led to the establishment of international principles for responsible lending and borrowing in the UN Conference on Trade and Development (UNCTAD). The principles will be applied in the Norwegian debt audit. In April, the UK government unsuccessfully tried to stop UNCTAD working on responsible lending and borrowing principles.

Jostein Hole Kobbeltvedt, Eurodad representative at the UNCTAD expert group on responsible sovereign borrowing and lending, said: “To apply the UNCTAD Principles in the Norwegian debt audit is a solid way of showing that the Norwegian government takes the Principles seriously and that they take their responsibility as a creditor seriously.”

Development Minister Holmås announced that the plan is for the audit to be concluded within a year.

Read more:
Breaking new grounds: International perspectives on a creditor audit in Norway. SLUG, 2011
Eurodad’s Responsible Finance Charter, Eurodad 2011
Is Indonesia’s debt to Norway illegitimate? By Magnus Flacké (SLUG) and Nikmah Khoirun (INFID)
Unctad’s Principles on Promoting Responsible Sovereign Lending and Borrowing, UNCTAD 2012.
Norway makes ground-breaking decision to cancel illegitimate debt (October, 2006)
Creditor Responsibility and the Norwegian Ship Export Campaign, By Kjetil G. Abildsnes (SLUG and FORUM)

Contact:
Oslo: Gina Ekholt, Director of SLUG, the Norwegian Coalition for Debt Cancellation:
+47 959 70 226
London: Tim Jones, Policy Officer at Jubilee Debt Campaign:
+44 (0)20 7324 4725 or +44(0)7817 628196
Brussels: Øygunn Sundsbø Brynildsen, Senior Policy and Advocacy Officer at Eurodad:
+32 (0)2 894 46 44

 

The state of debt: Putting an end to 30 years of crisis

Posted on by

Eurodad member Jubilee Debt Campaign has released a new report giving an overview of developing world debt.

The report investigates the external debts of both governments and the private sector in the global South. Analysing recently-compiled data from international financial institutions, it finds that private sector debt payments out of impoverished countries are now double those of the public sector, a complete turnaround since the year 2000. High private sector debts have been the main cause of the financial crisis in countries such as Spain, Ireland, Iceland and the UK.
 
Across the 32 low and lower middle income countries where data is available, private sector external debt payments have increased from 4% of export earnings in 2000 to 10% in 2010. In contrast, government external debt payments for these countries have fallen from 20% of export revenues in 1998 to 5% in 2010. In these countries, the number of children enrolled in primary school has increased from 63% in 2000 to 83% in 2010.

The negative impacts of the financial crisis – including falling trade revenues, loss of money sent home from migrants and multinational companies sending more money back to the rich world – have seen lending to the 35 most impoverished country governments almost double from $5 billion in 2007 to $9 billion in 2009. As a result, government debt payments by impoverished countries are predicted to rise by a third by 2014.

Thirty-two countries have had $120 billion of debt cancelled over the last decade in response to the global Jubilee campaign. Government external debt payments in these countries have fallen from 20 per cent of government revenue in 1998 to less than 5% in 2010. In these countries, the number of children enrolled in primary school has increased from 63% in 2000 to 83% in 2010.

Thirty years of debt crisis have devastated livelihoods across the world. Although debt cancellation released some countries from one debt trap, the developed country Debt Crisis has led to government debts in impoverished countries the increase in unregulated and opaque private lending could increase inequality and the risk of crisis. The Developed Countries Debt Crisis shows yet again why reckless lending and borrowing need to be governed and controlled. A new system for monitoring and regulating the way money moves across the world is needed, so that finance works for the benefit of everyone.

Download the full report: The state of debt: Putting an end to 30 years of crisis

Civil society helps secure positive outcome of UNCTAD XIII

Posted on by

By Carlos Villota,

The XIII United Nations Conference on Trade and Development (UNCTAD) took place in Doha, Qatar between 21-26 April. The Final Declaration – approved by the developing and developed countries alike – acknowledges the impact of the financial crisis and highlights the need for adequate regulation of this sector. It also includes a strong mandate for UNCTAD’s vital work which includes analyzing  the financial crisis and the related social crisis it has created.

The global financial and economic crisis and its continuing dramatic consequences for people and countries have highlighted the importance of UNCTAD´s work. ‘In fact, UNCTAD is well known for having predicted the crisis in advance, a fact that is to be commended, particularly given its paucity of resources compared to institutions such as the International Monetary Fund (IMF), the World Trade Organization (WTO), and the Organisation for Economic Co-operation and Development (OECD), which failed to do so’[1]. It was UNCTAD and not the Bretton Woods Institutions who stressed the dangers uncontrolled markets and financial liberalisation and deregulation. These are precisely the problems at the root of the current financial crisis.

The final Declaration provides support for a strong mandate for UNCTAD‘s vital work on financial and related crises. Nevertheless, this was not easy to achieve. Throughout the negotiations leading up to UNCTAD XIII, the developed countries tried to rescind the important mandate of UNCTAD to work on issues of global macroeconomic and finance policies, and particularly to participate in global governance on these issues, which are so essential to global prosperity. Both the JUSSCKANZ group of countries (Japan, USA, Switzerland, Canada, Korea, Australia and New Zealand) and the European Union were opposed to UNCTAD´s mandate of conducting vital analytical and advisory work on finance and responses to the crisis. They were even refusing to reaffirm UNCTAD´s mandate as agreed in Accra (April 2008).

CSOs position during the conference was key in order to achieve a progressive final declaration. During the conference, civil society groups offered incisive analysis on key issues under negotiation within to the conference theme of inclusive and sustainable development conference. Some Eurodad members like ActionAid International and SLUG together with other allies like The International Trade Union Confederation, Tax Justice Network, Our World Is Not For Sale network and other groups convened side events on issues of investment, financial regulation, the WTO, debt, tax policy, food security, and the social protection floor. Moreover, CSOs closely monitored the official negotiations and so were able to take action to protect UNCTAD’s mandate and have its previous key achievements recognised in the final document with respect key areas of work -such as the financial crisis, macroeconomic policy, debt management, the World Trade Organization (WTO) and other trade agreements, intellectual property, industrial policy, investment and other issues.

As a result, the outcomes of the UNCTAD XIII contribute to the transformations of the global economy that are necessary for true inclusive and sustainable development for all. One of the most contested paragraphs -17(d)- calls for UNCTAD to ‘continue, as a contribution to the work of the UN, research and analysis on the prospects of, and impact on, developing countries in matters of trade and development, in light of the global economic and financial crisis’. While this mandate could have been broader, negotiators in the G77 group of over 100 developing countries -together with civil society support- were able to push it through and wouldn’t back down. Civil Society groups celebrate that this language gives a clear mandate to UNCTAD to continue its excellent and highly lauded work on the global economic crisis.

For the billions of people around the world who suffer the consequences of the current global economics system the final Declaration of the conference has been positive. This is an important achievement especially considering the determined opposition of some of the developed countries during the negotiation process.

Fair rules on debt: developing countries try to force the IMF’s hand

Posted on by
Reply

By Francesca Giubilo,

27-04-2012

At last week’s World Bank and IMF spring meetings, the G24, the group of developing countries governments made a bold bid to get debt work-out mechanisms back on the agenda. They called for a study on sovereign debt restructuring mechanisms, a topic which the IMF had ignored. The European debt crisis provided an opportunity to re-open the debate.

Though the G24 call was not echoed in the International Monetary and Financial Committee’s statement, it was an important first step which shows how the problem of unpayable and illegitimate debt is increasing at international level. Civil society groups have constantly argued that new measures have to be taken to deal with sovereign debt problems, but why is this so important for low-income countries and which elements should be included in a debt work-out mechanism?

Although some of the effects of the financial crisis in low-income countries may have been mitigated by previous debt relief initiatives and a stronger focus on debt sustainability, almost one third of all low-income countries are either in debt distress or at high risk according to IMF data. In addition, the IMF predicts a permanent increase in the share of low-income countries revenues spent on servicing external debt. The consequences in terms of quantity and type of debt are hardly being analysed and no international procedure or mechanism exists to deal fairly and comprehensively with cases of debt distress.

A fair and transparent sovereign debt work-out procedure should include the 10 civil society principles, which help countries deal objectively with allegations of illegitimate debt. Furthermore, it will not only serve to deal with debt after the fact, but will also discipline lenders and promote more responsible lending and borrowing before loans are agreed.

As stressed in the Eurodad Charter on Responsible Finance, a fair and binding framework for responsible finance at the international level would provide a rules-based system which:

  • lays out the rights and the obligations of lenders and investors, borrowers and host states
  • protects the rights and welfare of citizens around the world

We will keep our eyes fixed on the new opportunities to put this issue back on the IMF’s agenda and push for changes. History bears testimony to many seemingly impossible turnarounds maybe another one is around the corner. We will continue fighting!