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

[David Legge]

Debt relief as if Justice mattered.  New report from the New Economics
Foundation
 
http://www.jubileeresearch.org/news/debt%20relief%20as%20if%20justice%20
mattered.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.
 
 
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