PHA-Exch> Debt relief as if justice mattered: New report from NEF resending?

["Claudio Schuftan" <cschuftan@xxxxxxxxxxxxxx>]

  

Debt relief as if Justice mattered.  New report from the New Economics Foundation

 http://www.jubileeresearch.org/news/debt%20relief%20as%20if%20justice%20mattered.pdf

 This report is the last in a series from the Jubilee research programme – one of the official successors to the Jubilee 2000 debt campaign – at nef (the new economics foundation) designed to stimulate progress towards a comprehensive and fair treatment of the crisis of sovereign debt of some of the world's poorest nations.

 With concern growing about the stability of the global financial system, and the endof an unprecedented period of low interest rates now in sight, this is needed morethan ever.

 As this report shows:

 • Some countries are spending more than twice their education and healthbudgets on debt service. For example, Lebanon spends 52 per cent of itsgovernment budget on debt service compared to 23 per cent on health andeducation combined.

 • Six times the level of debt relief currently available under global initiatives toreduce the debt of the Heavily Indebted Poor Countries (HIPC) is needed ifall countries are to achieve debt sustainability – a level of debt that protectsgovernment spending needed to meet basic human development needs as wellas not taxing those people who already live below the poverty line.

 • The level of debt relief required to achieve debt sustainability for all lower andmiddle income countries is estimated at $501 billion.

 • The total available debt relief envisaged under both HIPC and the MultilateralDebt Relief Initiative (MDRI) is $95 billion, of which $54 billion has been allocatedto the 22 countries that have completed the HIPC process.

 This is before 'Odious' lending - lending made to corrupt and dictatorial regimes –currently not considered in debt relief programmes is taken into account.

 This report gathers together, and updates, research previously published by theJubilee Research programme at nef, and makes the case for a comprehensive newapproach for debt relief for the world's most indebted nations. There is a clear needfor a new approach to resolving sovereign debt problems which is comprehensive,systematic, fair and transparent and above all, just. Responses so far to suchcriticisms from the creditors have been grossly inadequate.

 Debt relief isn't working: Current approaches to debt relief (HIPC and MDRIfor poor countries. and Paris and London Club renegotiations for middle incomecountries) are not solving the problems of Third World indebtedness. HIPC andMDRI are reducing debt burdens but only for a small range of countries andafter long delays, and at a high cost in terms of loss of policy space. While non-HIPC poor countries continue to have major debt problems and middle-incomecountry indebtedness continues to grow. The present approach is marred by theinvolvement of creditors as judge, prosecution and jury in direct conflict with naturaljustice and by the failure to take into account either the human rights of the peopleof debtor nations or the moral obscenity of odious debt. It is all too little and too late.

 Human rights: This report updates the calculations of debt sustainability takinghuman rights into account for 136 countries, first carried out in our report Debtrelief as if people mattered, using the latest figures available and taking MDRIinto account. Even after the debt relief already granted under HIPC and MDRI, 47countries need 100% debt cancellation on this basis and a further 34 to 58 needpartial cancellation, amounting to $334 to $501 billion in net present value terms,if they are to get to a point where debt service does not seriously affect basichuman rights. None of the countries needing debt relief can afford to take out anyextra debt and so a marked increase in grant aid is also needed if poverty is to bereduced and the Millennium Development goals achieved.

 This is before the problem of domestic debt is taken into account. With increasingrelaxation of capital controls on foreign exchange transactions and growinginvolvement of financial corporations in Third World domestic debt, the boundarybetween domestic and foreign debt is becoming increasingly blurred. Data is scarcebut we make a first attempt to quantify the problem.

 Odious debt: It seems inherently unfair if a blatantly corrupt and dictatorial regimecan take out loans in the name of its country, but without the consent of the people,steal the proceeds and then leave the unfortunate inhabitants and their children topay back the creditors, without those creditors taking any responsibility for knowinglylending to these odious regime. Our report, Debt relief as if morals mattered,calculated the cost of odious lending to 13 case study countries and showed that10 of them had odious debt greater than their current outstanding debt and that 5of them have odious debt greater than their national income. Lenders must be heldto account for irresponsible lending, including lending that sustains regimes thatviolate human rights.

 Mechanisms needed: We conclude that there needs to be a quasi-judicial processwhereby regimes can be declared odious and mechanisms put in place for anorderly work-out of both odious and unsustainable debt. As soon as there is such aworking mechanism there is going to be a need for the inclusion of existing regimesif there is not to be the unintended consequence that finance becomes a lot moreexpensive or even impossible for any regime which might be considered odious infuture.

 We recommend the creation of a panel of adjudicators chosen on a regional basisby all legislatures. These adjudicators would sit in panels of three to assess thelegitimacy of all regimes at the point of regime change. Present regimes could askfor a review of the legitimacy of past governments. Where a regime was declaredodious, loan agreements would cease to be enforceable in court.

 Whether on grounds of the odious nature of their debts or their unsustainability,governments should be able to call for a "Fair and Transparent Arbitration Procedure"(FTAP) in which equal nominees of creditor and debtor would sit with a mutuallyagreed chair to determine an orderly debt work-out. All creditors would be bound bysuch a work-out, thus outlawing the behaviour of vulture funds.

 Loans declared odious should be cancelled and compensation payable by thecreditor for any debt service paid. Odious loans "laundered" by being repaid (oftenby taking out new loans) should be compensated for by a rolling fund, which woulditself seek recompense from the original odious lender and the direct beneficiariesof the loan (ie the corrupt rulers and their associates).

 Only in this way can there be debt relief as if justice mattered.