Starting from February 2015, the Committee held three negotiating sessions. In addition there was one expert workshop co-organised by the UN and Joseph Stiglitz’s team, held at Columbia University in New York in April. The Committee’s work was also informed by the previous work of the UN Conference on Trade and Development (UNCTAD)’s expert group on debt workout mechanisms – a project made possible by a Norwegian grant to the UNCTAD, which has not been renewed. The expert group released the UNCTAD Roadmap and Guide for Sovereign Debt Workouts in April, just in time for the negotiations at the UN General Assembly.
A European governmental regime-building boycott
A key challenge for the Committee’s work was that the sessions were boycotted by essentially all nations of the Global North, including the whole EU, which mainly responded to the UK’s desire to stay away. Norway did send a delegate to the Committee, who was silent throughout the whole process. In consequence, there were many empty chairs in the UN’s Trusteeship Council where the sessions took place.
European CSOs did participate. A key advantage of a UN process as compared to other platforms where sovereign debt issues are discussed – namely the IMF and the Paris Club – is that it is inclusive and transparent. While the IMF and the Paris Club negotiate behind closed doors and do not even publish the minutes of their meetings, the UN Committee involved multi-stakeholder participation, and all sessions were broadcast live on UN Web TV for the whole world to watch. This was a process innovation in its own right. For the first time ever, a regime-building process on debt took place in a fully inclusive, transparent and accountable forum.
As well as participating in the Committee’s debates, we formally submitted a joint CSO position to the Committee in which we outlined our vision for a new debt restructuring regime, stressing in particular the need to link debt workouts with development needs and human rights. As European CSOs, we also responded to our governments’ boycott by sending letters to all European embassies in New York and finance ministries in European capitals, calling on them to engage. Needless to say, we were outraged by their boycott. The political agreement to create better debt workout organisations comes from the outcomes of the UN’s financing for development (FfD) summits, which have been endorsed by all European nations. The EU boycott sent a very bad signal to Southern partners ahead of the Addis Ababa summit in July, making clear to them that actual implementation of FfD agreements is not really intended when financial industry interests are at stake. Moreover, for us Europeans it was incomprehensible that – in the midst of an unresolved Euro crisis that drove millions of European citizens into poverty and unemployment – our governments refused to take any action.
A Europe divided by the debt crises
We garnered support from the European Parliament in May when they published their resolution on financing for development: paragraph 46 stated that the Parliament “insists that sustainable debt solutions, including standards for responsible lending and borrowing, must be facilitated through a multilateral legal framework for sovereign debt restructuring processes, with a view to alleviating the debt burden and avoiding unsustainable debt; asks the EU to engage constructively in the UN negotiations on this framework; urges the EU to push for the implementation of the UNCTAD principles of responsible sovereign debt transactions for both borrowers and lenders”. However, in what can be regarded as an affront to the European Parliament, EU governments simply ignored this resolution.
There were constructive forces in the European governments, but these have been marginalised by a not so constructive coalition led by the UK and Germany. Southern EU Member States were generally more open to EU participation. Greece was the first EU country that started to send a delegate to the Committee’s session. Ireland and the Czech Republic, two of the eleven countries that had voted ‘no’ on the 2014 Resolution, changed to ‘abstain’ in later votes.
Also within countries, there have been disputes between different ministries. Foreign ministries have generally been more open to the UN process, while finance ministries were more reluctant. The reason was simply that, in most European nations, the responsibility for UN processes lies with the foreign ministry, while finance ministries are in charge of IMF processes. Finance ministries insisted that ‘sovereign debt’ was an IMF issue. They feared losing control when regime-building moves to the UN. Generally, the European view was that the IMF was the place to discuss such issues – despite all the evidence that the IMF is the place where sovereign debt restructuring frameworks go to die.
Basic principles instead of a legal framework
Due to the boycott, the G77 lowered their ambitions. In an attempt to make it possible for all actors to come in and get a General Assembly resolution adopted by unanimous consensus, they made the concession to adopt “Basic Principles on Sovereign Debt Restructuring Processes” instead of the ‘Multilateral Legal Framework’ that was originally supposed to be developed – and that would be urgently needed to overcome the unjust and dysfunctional non-regime for the management of debt crises that we have now.
However, the destructive forces did not reward these concessions. When the Principles Resolution was finally voted, it could not be adopted by consensus. The G77 and some others voted in favour; most European nations, including Norway, abstained. Six countries voted no, including Germany and the UK, which even violated a European Council (ECOFIN) decision by doing so.
At the end of the day, the UN agreed to adopt a set of nine Principles. They start with ‘sovereign immunity’ and the ‘right to restructure’, which each nation in debt crisis has the right to restructure its debts, a necessary action “which should not be frustrated or impeded by any abusive measures
”. This is, of course, mainly to address the problems with holdout creditors and vulture funds. They also include process-related Principles such as ‘Impartiality’ and ‘Transparency’, which address the problem that currently debt restructurings are negotiated behind closed doors and decisions are made by creditor institutions such as the IMF or the Paris Club. As such, the Principles are obviously a pretty good innovation, and the first official UN framework in this area.
A need for strong follow up
The main problem is that these Principles are not really binding, and compliance with the Principles by creditors and debtors is not enforceable. This would have been the main advantage of a real legal framework. We cannot know yet what the impact of the Principles will be, and if they change the way future debt crises are resolved. More work will be needed to make this happen. For example, through a follow up-process at the UN that strengthens the Principles and makes them more binding. The Principles Resolution already foresees that there will be a follow-up process at the UN. But also through putting pressure on debtors and governments to comply with such principles in future debt restructurings. The Principles are a first step, many more are necessary to build the regime we need.