Committee for the Abolition of Illegitimate Debt

Madam President,

I have decided to depart slightly from my script because I was struck by what you said a short while ago – that what we do is just as important, if not more important, than what we say.

We are here because those who control the global financial system failed to adhere to the international rule of law. We are here because of their failure to recognise that the economic policies they craft have a direct bearing on the human rights, lives, rights and well-being of the masses for whose benefit they ostensibly adopt these policies. We are here because they failed to heed the cries of those who have borne the brunt of their misguided policies.

I would like to pose a question at the outset: why should we be concerned about sovereign debt Sovereign debt Government debts or debts guaranteed by the government. ? I believe we should be because excessive foreign debt burdens clearly have a negative impact on the realization of human rights in debtor countries and on development. Sovereign debt burdens have an adverse effect on the realization of human rights and development in two main interrelated ways:

 by crowding out public investment in essential social services; and

 through policy conditionalities attached to debt and debt relief.

When scarce national resources are diverted to the servicing of debt, there is little money left over for governments to fund the provision of essential public services such as education, health, housing, water and sanitation. In these circumstances, several human rights, including the rights to education, health, adequate housing, water and sanitation, food, work and development, are at risk or violated and millions face poorer living conditions.

In addition, the conditions which countries have to meet to secure new loans or to qualify for debt relief often compel further reductions in government spending on basic social services. While these conditionalities are supposedly aimed at promoting economic growth and restoring the debt repayment capacity of indebted countries, studies indicate that they do, in fact, often have a negative impact on the realization of human rights in the longer term and they have contributed to poverty and inequality in many countries that have been constrained to implement them. Conditionalities also significantly undermine national sovereignty and the right to self-determination in that they erode the ability of governments to freely determine and pursue economic and social policies that advance their development agendas as well as the general welfare of their citizens.

In tacit recognition of the challenges that heavy debt burdens pose for countries in terms of fulfilling their human rights obligations and furthering their development, there have been a number of initiatives proposed or taken over the years at the international level to address the debt crisis, including from a human rights perspective.

Since 1990, several proposals have been made by various stakeholders (including civil society, academics and international financial institutions) for an international mechanism for the orderly restructuring of sovereign debt. In 2001, for example, the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org ’s then Managing Director, Anne Krueger, proposed the establishment of a ‘Sovereign Debt Restructuring Mechanism’ to be administered by the IMF. None of these proposals has ever been implemented.

Nevertheless, we can identify four approaches that have been commonly used to deal with sovereign debt repayment difficulties:

 The contractual approach as reflected in the use of the so-called ‘collective action clauses’ in sovereign bonds;

 The voluntary approach as reflected in codes of conduct for lenders and borrowers as they enter into negotiations;

 The use of creditor-controlled forums such as the Paris and London Clubs to negotiate and restructure or cancel bilateral and commercial debt, respectively; and

 Multilateral debt relief initiatives for poor countries, currently, the Heavily Indebted Poor Countries Heavily Indebted Poor Countries
HIPC In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia. (HIPC) Initiative and Multilateral Debt Relief Initiative led by the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and International Monetary Fund (IMF).

None of these approaches, however, has satisfactorily addressed sovereign debt problems, at least not in a fair or enduring fashion.

In this context, I would like to offer some brief reflections on two initiatives adopted by the United Nations which I believe hold real promise in terms of addressing sovereign debt repayment problems in a fair and sustainable manner: the UN Guiding Principles on Foreign Debt and Human Rights [1] (which I am honoured to have written during my tenure as UN Independent Expert on foreign debt and human rights) and the UN Basic Principles on Sovereign Debt Restructuring Processes. [2]

The Guiding Principles on Foreign Debt and Human Rights

The Guiding Principles on Foreign Debt and Human Rights were endorsed by the Human Rights Council on 18 July 2012. Their overall purpose is to provide guidance to lenders and sovereign borrowers on how to balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. their contractual obligations relating to debt arrangements on the one hand, with their international legal obligations to respect, protect and fulfil all human rights, on the other hand.

The principles are set out in three main sections. The first sketches the scope of the principles, making it clear that the principles apply to States, international financial institutions and private actors such as organized groups of bondholders. The second section outlines the key human rights principles upon which the Principles are based. These include the primacy of human rights; equality and non-discrimination; progressive realization of human rights; minimum core obligations; non-retrogression; the duty of international cooperation; the shared responsibility of creditors and debtors; and ensuring an independent process of national development. These principles inform the operational principles in the last section.

The operational principles include those on external debt, debt sustainability, national development strategies and resolution of debt-related issues.

The Guiding Principles elaborate various measures that are designed to ensure that States’ obligations relating to debt do not undermine human rights. These include the following:

 Lenders should ensure that the servicing of new loans does not affect the capacity of the borrowing State to perform its human rights obligations (para. 39);

 Lenders should refrain from financing projects that are likely to infringe human rights and, in this regard, they should conduct credible human rights impact assessments or request a human rights institution in the borrower State to conduct such HRIA (paras. 40 and 46);

 Creditors should avoid linking policy measures (such as austerity, privatization and structural reform) to loans and debt relief (para. 56);

 Suspension of debt payments when a profound change in circumstances beyond the control of the borrower State occurs (para. 58);

 Limiting amounts recoverable by litigating holdout creditors to amounts payable Payable A sum of money that one person (debtor) or group of people owes to another (creditor). to other creditors as agreed under an international debt relief mechanism (para. 61);

 Prohibiting the sale of debt on the secondary market Secondary market The market where institutional investors resell and purchase financial assets. Thus the secondary market is the market where already existing financial assets are traded. to holdout creditors in order to prevent such creditors (termed “vulture funds Vulture funds
Vulture fund Investment funds who buy, on the secondary markets and at a significant discount, bonds once emitted by countries that are having repayment difficulties, from investors who prefer to cut their losses and take what price they can get in order to unload the risk from their books. The Vulture Funds then pursue the issuing country for the full amount of the debt they have purchased, not hesitating to seek decisions before, usually, British or US courts where the law is favourable to creditors. ”) from claiming extortionate profits from indebted countries (para. 62);

 Ensuring that debt sustainability assessments take into account the impact of debt on the achievement of human rights and development goals (para. 65);

 The need for periodic, transparent and participatory debt audits, the results of which should be publicly disclosed, to assess the loan contraction process, the use of loan funds, the impact on development and realization of human rights, and in particular to inform future decisions on borrowing (paras. 67 and 68);

 State monitoring and regulation of external lending and borrowing by the private sector in order to prevent private debt burdens being created which bring financial instability (para. 72); and

 Establishment of an independent international debt workout mechanism (para. 84).

This last principle reflects the calls by debt relief campaigners for a credible international sovereign debt work-out mechanism. It is also similar to the initiatives taken by the UN General Assembly to establish an ad hoc committee to explore this subject further and more recently its decision to adopt core principles for sovereign debt restructuring processes.

The Basic Principles on Debt Sovereign Debt Restructuring Processes

As you probably are aware, at its Sixty-Ninth Session on 10 September 2015, the UN General Assembly adopted a resolution (A/69/L.84) which essentially proclaims that sovereign debt restructuring processes should be guided by the following nine basic principles:

 Sovereignty (that is, States have the right to design their macroeconomic policies, including restructuring their sovereign debt, and this should not be frustrated or impeded by any abusive measures);

 Good faith on the part of both the sovereign debtor and its creditors in order to ensure constructive debt restructuring negotiations;

 Transparency, which focuses on the need to enhance the accountability of the actors concerned;

 Impartiality in relation to the conduct and decisions of all institutions and actors involved in sovereign debt restructuring workouts;

 Equitable treatment of creditors and debtors;

 Sovereign immunity from the jurisdiction of foreign courts and execution regarding sovereign debt restructurings as a right of States, exceptions to which should be restrictively interpreted.

 Legitimacy, which entails respect for the requirements of inclusiveness and the rule of law,

 Sustainability, which implies that sovereign debt restructuring should lead to a stable debt situation in the debtor state, preserving creditors’ rights while promoting economic growth and sustainable development, reducing economic and social costs, ensuring the stability of the international financial system and respecting human rights; and

 Majority restructuring which implies that sovereign debt restructuring arrangements that are approved by a majority of creditors should not be frustrated by other States or a non-representative minority of creditors.
Most of the above basic principles bear a striking similarity to the Guiding Principles on Foreign Debt and Human Rights. [3]

Conclusion

When I began, I expressed the view that both the Guiding Principles on Foreign Debt and Human Rights and the Basic Principles on Sovereign Debt Restructuring Processes represent important initiatives in the quest for a fair and durable solution to sovereign debt problems. But I say so with a degree of caution given the context in which both sets of principles were adopted. Both sets of principles were adopted by vote, rather than consensus. The votes in the Human Rights Council and the General Assembly on the relevant resolutions are broadly reflective of the geo-political voting pattern in the UN where developing countries vote in favour of measures to enhance the fairness of the international financial system and to mitigate the negative impacts of debt burdens on human rights, while the most powerful developed countries often block such measures, arguing that discussions on these measures must only take place within international financial institutions and organisations such as the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

, not the UN. For example, the Guiding Principles were endorsed by the Council by a vote of 31 member states in favour, 11 against and five abstaining. Similarly, the Basic Principles were adopted by a vote of 136 in favour, 6 against and 41 abstaining.
The position of the developed countries is perhaps best summed up by the statement made by the delegation of the United States in the Human Rights Council in 2011:

“[W]e continue to believe that it is incorrect to treat the issue of foreign debt as a human rights problem to be addressed by this Council. Rules other than human rights law are most relevant to the contractual arrangements between States and lenders. There are other international fora which are much better equipped to deal with the questions of foreign debt and debt forgiveness, which are principally economic and technical in nature.” [4]

In a similar vein, in explanation of the vote in the General Assembly earlier this month, the European Union (EU) argued that the text of the General Assembly resolution on the Basic Principles contained a number of statements that did not accurately reflect international law or treaties. The EU went on to contend that the IMF is the appropriate institution to host global discussions on the subject.

Supporting the EU position, the United States contended that the resolution had several flaws, including the suggestion of a right of a State to debt restructuring and the threat to contractual obligations. A statutory mechanism for debt restructurings would create uncertainty in financial markets with negative implications for the flow of financial resources to developing countries. In the view of the representative of the United States, the UN was not the appropriate forum for such issues.

It should be noted that Greece - a country which has been experiencing a severe debt crisis and has been constrained to implement a harmful adjustment programme to address its crisis - abstained during the General Assembly vote. This is hardly surprising, however, given that the EU tends to adopt a common position on such issues. For example, on 7 September 2015 (three days before the General Assembly vote) the EU expressed opposition, as a group, to the UN initiative in a document circulated to its member states entitled ‘EU common position on the UN draft resolution A/69/L.84 on “basic principles on sovereign debt restructuring processes”.’ The document emphasized that: ‘A split vote would undermine the efforts undertaken so far to establish and maintain a common position on this very sensitive file, which is of major importance for the EU itself, ever more so in the current context’ and that ‘[i]t is important that Member States enter into and follow through on a common position in respect of the IMF and UN contexts and that this position is the basis for internal and external coordination.’

I believe that the position adopted by the powerful developed countries (including the EU as a whole) which seeks to limit discussion of these important issues to forums which they control is untenable for a number of reasons but I will address only two.

 Firstly, with regard to the statement by the US in the Council, it is important to underscore that the “rules other than human rights law” and “other international fora which are much better equipped to deal with the questions of foreign debt and debt forgiveness” have to date failed to deliver a fair and enduring solution to the sovereign debt problem. Moreover, the rules alluded to afford no protection for States that experience debt repayment difficulties in much the same way that insolvency laws do for individuals and entities at the national level, nor do the rules recognize or address the unjust circumstances in which some of the debt was incurred.

 Secondly, the “other international fora which are much better equipped to deal with the questions of foreign debt and debt forgiveness” (presumably, the international financial institutions and the Paris Club) do not have the requisite expertise to properly factor human rights into their policies and programmes. They also have a credibility problem.

In closing, I share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. the view that the new principles on debt restructuring provide the basis for a fair, balanced and effective process for sovereign debt restructuring through a universal legal mechanism buttressed by the only organisation with sufficiently global legitimacy – the UN.

I want to leave you with the following question to reflect upon: Does the so-called “EU common position” really reflect the wishes and demands for social and economic justice of the ordinary people of Greece and other EU countries who have borne and continue to bear the brunt of high sovereign debt burdens and related adjustment?