By Francesca Giubilo,
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!