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

[Claudio Schuftan]

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*.
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