Tag Archives: debt sustainability

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.

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 

Citizens standing up against unfair debt

Posted on by
Reply

By Carlos Villota,

05-04-2012

Two years after the Greek debt crisis first appeared in headlines across the globe, policy makers in Europe are still failing to deal soundly with the crisis. Inspired by the Jubilee movement that has long fought for debt justice in the South; a wave of mobilisation has taken place with, debt campaigners standing up across Europe. Campaigners demand transparency, justice and protection of citizens’ rights against the consequences of financial market failures.

The debt problems in Greece, Ireland, Portugal, Spain and Italy are of different nature, but the remedies are largely the same: Cuts are imposed on the most basic of the State’s social functions, justified with the need to finance public debt service and not lose further trust from financial markets. The conditions imposed on already over-stretched governments often push economic policies, such as privatisation of public enterprises. The remedy is not only imposed, thus violating basic principles of democracy when parliaments are sidelined and national governments are largely made puppets steered from Frankfurt (the European Central Bank) and Brussels (the European Commission), but also has serious negative effects on the citizens of the indebted countries.

For instance, in the case of Greece, cuts and austerity measures have driven more than one out of four (27.7%) citizens under the poverty line according to data from the European statistics office. Policy measures have included 150,000 public sector lay-offs, an axing of pensions for many public employees and a 22% reduction in the national minimum wage. According to Eurostat, the number of unemployed people, meanwhile, equates to an average rate of about 20 per cent across the population and among youth (under 25), close to 50 percent.

Refinancing in a debt crisis with new loans with policy conditions attached is nothing new. We have seen it fail before in different countries from Zambia in the 1980s to Argentina at the beginning of the last decade. So why are these policies still being pursued? One obvious aim is to recover as much of investors´ money as possible, whatever their responsibilities in causing the current crisis, by transferring liability to the whole of society. This is why the inevitable Greek writedown was delayed as long  as possible and then investors accepted partial writedown only to avoid losing 100% in a total default.

Demanding debt justice in Europe, citizens are standing up to demand real democracy ensuring that their rights and wellbeing have the priority over speculative financial markets and unfair public debts. Several campaigns are taking place all over Europe

Campaigners are demanding transparency. The call is simple: Tell us what we are paying for! Citizens stand up and demand transparency and information about what their taxes are spent re-paying. Learning from Southern debt campaigners, one of the tools used to address this opacity is to carry out debt audits, the purpose of which is to provide the knowledge on which truly democratic decisions should be based and to remove the mask of the financial system.

    • In Ireland, inspired by debt campaigners across the Global South, Debt and Development Coalition Ireland published a debt audit report, presenting an in-depth study of the Irish debt. The audit revealed that Ireland’s debt repayments for the now dead Anglo-Irish Bank will reach over €47.9 billion (That is 30% of Ireland’s GDP) by 2031 if the repayments are not suspended. Irish campaigners demand the Irish government immediately stop servicing the debt of the now dead Anglo-Irish Bank and to enter into negotiations to ensure the debt is written down.
    • Economists, activists, academics and parliamentarians from across the world are demanding the establishment of a Public Commission to examine the debts that lie at the root of Greece’s crisis.
    •  In Spain a movement in favor of audits and of awareness on debt has been developed. Similar actions are also taking place in Portugal, Italy and France.

A fair solution to debt crises is also needed

While transparency and non-payment of unjust debt is key to get out of the current crisis, long-term solutions are also needed otherwise debt crises will happen again. Across the world countries are increasingly turning to loans to cover rising fiscal gaps. The European crisis clearly repeats the lessons of the Latin American debt crisis 30 years ago – that ad hoc refinancing and piecemeal responses defined by the creditors simply do not solve debt crises. Not on a macro level and crucially not for the people.

A fair and independent debt work-out procedure where analysis and decision making is independent of creditors is needed to find fair and lasting solutions to debt problems, including holding creditors to account for reckless behaviour, by deeming them to take the losses that result from any reckless behaviour. Only by making lenders pay for reckless lending can we create incentives to behave prudent and responsible in the future. 

Promoting transparency through debt audits and fair, lasting solutions through independent debt resolution procedures could pave the way for a genuine break with the failed economic policies of the past and lead to sound lending and borrowing in the future, that can also favour the poorest and support democratisation of political and social life.