Concordats for debt cancellation Jubilee 2000 Coalition

The Jubilee 2000 international movement comprises over 50 countries with autonomous campaigns and individual policy perspectives. Bringing together the declarations from Jubilee 2000 international meetings in Rome, Tegucigalpa and Accra, Ann Pettifor, director of the Jubilee 2000 Coalition in the UK, suggests a framework for creditors and debtors to negotiate debt cancellation – a concordat.

This paper should not be taken as definitive, but as one personal contribution to a vital debate about power relations between rich creditors and poor debtors – a debate triggered by the Jubilee 2000 movement.

Concordats for debt cancellation
a contribution to the debate

Making debt relief work twice -

first, as money to the poor;
second, for empowering the poor

by Ann Pettifor, Director, Jubilee 2000 Coalition UK, 30th March 1999

“Everyone is entitled to a social and international order in which the rights and freedoms set forth in this declaration can be fully realised”

Article 28, Universal Declaration of Human Rights 1948

Acknowledgements

In November 1998, representatives of Jubilee 2000 coalitions from more than 40 countries met in Rome, to hammer out agreement on our global policy and campaigning strategy. At that meeting it was agreed that:

“Civil society in the South must play a significant and influential role in a transparent and participatory process which will define and then monitor the use of resources released by debt for the benefit of the impoverished.

Lending, borrowing and debt negotiation must reflect a just relationship between debtors and creditors. Transparent and independent arbitration should be available to cancel debt.”

At a meeting in Tegucigalpa, Honduras, in January, 1999, representatives from 16 Latin American countries gathered to formulate a continent-wide agreement, and to co-ordinate campaigning across the continent. The Tegucigalpa Declaration called for :

“Cancellation in the year 2000 of the immoral and illegitimate debt crippling third world countries under the following principles:

It is these policy agreements that form the basis of this proposal. The proposal is a contribution to the debate about which forms should be given to the policy agreements outlined above, and builds on the ideas and policies of many individuals and organisations active within the Jubilee 2000 international coalition. I would like particularly to acknowledge the advice and comments of Henry Northover of CAFOD, Tony Burdon of Oxfam, Professor Kunibert Raffer of the University of Vienna, Matthew Martin of Debt Relief International, and Dr Joe Hanlon and John Garrett of the Jubilee 2000 UK Coalition.

I also want to thank colleagues in the international Jubilee 2000 movement for their comments and improvements to the original paper.

This paper should not in any way be taken as definitive, but as my contribution to a vital debate about power relations between rich creditors and poor debtors – a debate triggered by the Jubilee 2000 movement.

Introduction

Within the international Jubilee 2000 movement there is widespread consensus that the present system of lending and borrowing is profoundly unjust; that it is dominated almost entirely by creditors. In this respect the international financial system resembles the dark ages of the Dickensian era, when creditors had the power to imprison and destroy the lives of debtors. This was before bankruptcy procedures, regulated by independent receivers and conducted within the framework of the law, were introduced. These days we don't have debtors prisons for people. We have them for countries instead. The keys to these debtors prisons are held by the IMF, the agent of all international creditors, public and private. While the IMF clearly will always have an important role to play in international financial relations, we in Jubilee 2000 believe that creditors should take their proper place within an international legal framework, governed by independent, fair and transparent processes.

These ideas have led to an extended debate within the Jubilee 2000 movement about the way in which debt relief for the highly indebted nations should be agreed. This paper is a contribution to that debate.

Debt and conditionality

Detailed conditions imposed by northern donors and lenders have failed, both because they were often inappropriate and arbitrary, and because they were poorly monitored. Conditions imposed and monitored by creditors from Washington and not owned by governments and peoples themselves will never work. However the main reason for the failure of conditions, is the deeply unjust basis on which they are determined. In processes over the negotiations of loans, rescheduling of debts, and the writing off of debts, creditors play the roles of plaintiff, judge and jury. Because of the absence of any international legal framework for the regulation of international lending and borrowing, borrowers and debtors are often at the mercy of creditors. At the same time elites in borrowing countries, that sign loan contracts in secret, and that are not directly responsible for repayment over the life of a loan – have an inbuilt bias to borrow without vigilance.

The answer is not ever more conditions by western creditors, but to empower local people to set and enforce the conditions. Debt cancellation may be a single action, but its impact extends over decades as debt service payments fall due and are cancelled. By ensuring that the voices of elected bodies and non-government organisations are heard at all stages of the process and over many years, debt relief works twice - first as money to benefit the poor, and second as empowerment of the poor.

As the Tegucigalpa declaration makes clear, Jubilee 2000 is calling for an end to the crippling debt that burdens the poorest countries, by the end of the year 2000. However we are also calling for an alteration in the balance of power between international debtors and creditors. We therefore want a new process for agreeing debt cancellation, a process that will empower people in indebted nations to participate in decisions about debt cancellation, and that will discourage corruption, by monitoring and auditing the way in which resources released by debt relief, are used.

This paper proposes the establishment of an independent Debt Review Body, and a process for agreeing and implementing a concordat between the debtor state and society. We propose that there should be one for each indebted country that applies for relief. Appointments to this body, hereafter referred to as the Debt Review Body (DRB), could be initiated and facilitated by the UN or the International Court of Justice. However, the role of the UN would be limited to ensuring that the appointment of the Debt Review Body was carried out fairly and transparently, with participation by civil society in the indebted nation.

Below we summarise the proposal.

Summary of proposal

Any country with debt problems could apply for an independent review of its debt, and for debt cancellation. The application would be made to the UN or the international court of justice – who would then trigger the process for setting up an independent body, guaranteeing transparency, and the participation in the process of civil society within the indebted nation; and to review the nation's debt.

The independent Debt Review Body would act as a binding arbitration panel. The process for setting up and maintaining the DRB need not be bureaucratic or cumbersome. It requires only the confidence of debtor governments and organs of civil society on the one hand, and creditors on the other.

The Debt Review Body's first task would be to commission a full audit of outstanding public debt. It would simultaneously ask for government plans for economic recovery and reconstruction, and support for the poor.

It would then hold open, public hearings to assess the proportion of debt which should be cancelled. Its decisions would be based on human development criteria, and on the costs of reconstruction and economic recovery. Next it would publish its binding conclusion.

The Debt Review Body would then work with debtor and creditor representatives to draw up a plan or concordat which would:

a) outline how much debt is to be cancelled;

b) set up auditing and monitoring processes to ensure that money released from unpaid debt goes into economic recovery, reconstruction and poverty reduction;

c) establish a Poverty Action Fund to facilitate the flow of freed up resources to the poor.

Finally, there would be a public and highly publicised signing of the concordat, ensuring a widespread understanding of what has been promised and agreed.

The independent Debt Review Body will defend the sovereignty of a debtor nation, while being fair to creditors.

Transparency and participation by local organisations, including opposition parties, trades unions, community organisations etc., must be central to debates and decisions on the concordat. Local organisations must be given "a right to be heard". The Debt Review Body will by these means encourage and strengthen democratic institutions and economic literacy in debtor nations.

The DRB will also encourage public scrutiny, monitoring and accountability of any new loans taken out as a way of preventing the country from falling into a new debt trap.

If a government defaults on its obligations - for example, if a new regime takes power, refuses to honour commitments under the concordat and prevents local organisations from giving evidence to the DRB - then there must be harsh penalties. In particular, if the DRB concludes that the concordat has been violated, then new loans and aid payments should be withheld.

Appointment of Debt Review Body

We propose a model based on tried and tested arbitration procedures. The government of a severely indebted country seeking relief from debt would invite the UN to set up a DRB to arbitrate between the debtor nation and its creditors, and to establish a concordat between the two.

The United Nations or the International Court of Justice could facilitate and oversee the appointment of each DRB, in consultation with civil society in the indebted nation. The DRB could consist of three or five members, with an equal number of representatives appointed by the debtor and the creditors and one other agreed by these representatives. The group could then agree the appointment of a chairperson. Representatives from civil society within the indebted nation must be appointed to the DRB as official observers; with rights to attend all meetings; to speak and to scrutinise all documents. The decisions and deliberations of the debtor government and creditor representatives (including bilateral and multilateral creditors) on the DRB would be made public, through publication of minutes and reports.

Stages of work for the Debt Review Body

Audit of the debt

A primary duty of the DRB will be to be both fair and transparent in its dealings with both the debtor government and its foreign creditors.

The first act of this body will be to draw up a full and proper audit of the outstanding public debt portfolio.

How the concordat would work

The following example shows how the concordat would work.

A poor country owes $10 billion and each year pays interest of 5% on the debt. The concordat would constitute agreement that all or part of the debt of $10 billion is legally written off the books on a particular date, x years hence – the term of the loan. However, provided the debtor nation enters into and henceforth honours this concordat, no interest is payable on the debt from that moment on. If throughout the x years the conditions are honoured on the debtor nation's part, those debts which can only be repaid at great human cost, will have been written off, and the government will not have paid debt service on these.

The concordat will further define, for each debtor nation and its creditors, the guidelines and parameters for re-cycling current annual repayments into productive expenditure which benefits the poor. A poverty action fund will be established for diverting funds into poverty reduction.

If, however – say, five years after the concordat is agreed, a government ceases to honour its side of the concordat, then because the condition of its write-off has been broken, penalties will be imposed. The DRB could propose to donors that aid (except for emergency, humanitarian aid) and new loans be suspended.

The DRB would remain in existence for the full term of the outstanding debts. It would determine and monitor whether the terms of the write-off and the concordat has been fully honoured. It must of course be honoured on both sides.

At the end of x years, the debt will finally be written off, and the DRB wound up.

Debt cancellation

The DRB's second task will be to assess which proportion of the debts should be cancelled, and to decide what losses creditors should bear as well as what resources should be devoted, by the debtor nation, to servicing a sustainable level of debt.

Public debate

The DRB's third task will be to make public its conclusions and to actively generate debate about the debt in the country, using all possible media.

Concordat

The fourth task will be to draw up a concordat between the sovereign debtor and a representative body of creditors. This concordat will forge agreement on a) debt service cancellation and the annual sum of released resources; and b) on how the released resources are to be used for economic recovery and reconstruction and c) the establishment of a Poverty Action Fund. Guidelines will be established to ensure that released resources are used for the benefit of the poor in that country.

As soon as a debtor country requests the setting up of a Debt Review Body, the money it is using for debt service payments would be set aside in a special fund, for economic recovery, reconstruction and poverty reduction. The concordat would include an agreement on the allocations of the money in that fund and the signatories for disbursement of the funds. If the DRB agreed, some or all of this money could be released for development activities before the full concordat was agreed.

The overwhelming purpose of the concordat would be to ensure that money released (i.e. debt service remitted) goes in the service of the poor. There must be guidelines to this effect - and in particular transparency guidelines - but the DRB must leave scope for policy choice to local institutions, and thereby foster local debate about economic choices, and through such debate strengthen democratic institutions. The major purpose of the concordat will be to release debtor nations from bondage, and to rebuild effective sovereign and democratic government.

Local participation

The guidelines would include periodic consultation in public forums. Local organisations, including opposition parties, trades unions, community groups and local Jubilee 2000 groups, will be given "a right to be heard" by the Debt Review Body. Through this “right to be heard” they will be empowered to monitor periodically – perhaps once every six months - the use of money released. If local organisations invite international institutions to participate, like the UNDP, UNICEF, Amnesty International, Oxfam or similar bodies, they too should be granted the right to be heard.

A public pledge

The DRB's fifth task will be to ensure a public pledge, a public signing of the concordat, transmitted through every media, so that there is widespread understanding of what has been promised; that a concordat has been entered into between creditors and the debtor government.

Auditing, monitoring and reporting

The DRB's final task will be to systematically monitor the implementation of the concordat, and periodically audit and report on progress. It will do this by way of a six-monthly audit and review of progress in which the government of the country has to give a full account of how resources have been used in accordance with the policy guidelines and parameters of the concordat.

Government creditors, and the organisations of civil society named above, will have the right to make representations to the DRB if they conside