Thursday 23 April 2020
Today, the UN Secretary General called for a sovereign debt restructuring mechanism to be established as part of the longer term response to the Covid-19 crisis and its economic impacts. The call is accompanied by a new report from UNCTAD - the main UN body dealing with trade, investment and development issues - calling for a global authority to oversee debt restructurings.
Mark Perera, Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad) said: "The UN is rightly identifying the need for a fundamental rethink of how sovereign debt crises are handled and global leaders should look seriously at the UNCTAD proposal. The impact of the Covid-19 crisis has laid bare a system ill-equipped to deliver timely and adequate action to prevent debt undermining the needs and rights of populations.”
The UN estimates that debt relief of approximately USD 1tn will be required for developing countries in the wake of Covid-19. As part of a Global Debt Deal, UNCTAD proposes creation of a global authority to oversee debt restructurings for developing countries, to secure this relief.
Perera said: "Past failures to establish a global framework for sovereign debt restructuring have contributed to the fragile financial situation now hampering developing countries' responses to Covid-19. This has also meant agreement on a comprehensive international debt relief package is beholden to geopolitical jockeying and creditor interests. What developing countries are currently being offered by creditors ultimately amounts to more debt creation, and austerity once the crisis abates.
“Any global debt authority will need to ensure a country can restructure its entire debt stock in one place and in a procedure involving all creditors. It will need to be independent from creditors, support debtor coordination, ensure transparency in the public interest, and ensure respect for human rights law and development and climate commitments.
“Further discussion is now vital to consider how such an authority could function within the existing international financial architecture, including the Paris Club, and ensure key sovereign debt jurisdictions would be covered. Ultimately, it would need to pave the way for a full, international framework.”
Civil society organisations have long pointed to the need for a global debt restructuring framework under the UN, and recently set out key principles essential to ensure it provides a timely approach to orderly, fair, transparent, and durable crisis resolution.
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