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Pettifor calls
for Chapter 9 as model for international insolvency
A meeting of prestigious economists, called to discuss the need for an
international insolvency process, was held in Washington on the 29th November.
The event was hosted by the Institute for International Economics and
the new Center for Global Development, headed up by Ed Scott and Nancy
Birdsall. The meeting was attended by a wide range of distinguished academic
economists, senior officials of the IMF and World Bank, and prominent
Washington-based NGOs. The meeting took place, coincidentally, the day
after a major announcement by the IMF's deputy managing director, supporting
an international insolvency mechanism.
The meeting was addressed by Michael Kremer of Harvard; Ann Pettifor of
the Jubilee Debt Programme at the New Economics Foundation, London; and
Nancy Birdsall and John Williamson of the Center for Global Development.
Pettifor welcomed the IMF's recent initiative, particularly the deputy
Managing Director's assurance in her speech to the National Economists
Club in Washington that "the international community is not going
to impose the terms of any restructuring agreement on debtors and creditors"
- and that the process may involve "the imposition of exchange controls
for a temporary period".
"This is a radical departure for the IMF" said Pettifor, "and
their willingness to refrain from adjudicating the process of negotiation
between international debtors and creditors, must be welcomed. Instead
this process should be overseen by an independent arbiter/judge".
However Pettifor regretted the use of Chapter 11 of the US Legal Code
as a model for the mechanism, and called on the international financial
community to use Chapter 9 of the US legal code instead. "Chapter
9" said Pettifor "as Prof. Kunibert Raffer of the University
of Vienna has consistently pointed out, is used for governmental organisations,
like municipalities in the US. This enlightened piece of US legislation
protects the right of municipal debtors to continue providing services,
and to not have these services cut back by creditors. Similarly the US
Supreme Court has ruled that municipalities are not obliged to increase
taxes to repay debts.
"However", said Pettifor "the most important aspect of
the Chapter 9 model is the right it gives to citizens to participate in
the debate about debt re-structuring. Under US law, employees and taxpayers
of municipalities like Orange County are given "the right to be heard"
in any negotiations for a resolution of the debt crisis. Employees and
trades unions are given the right to comment on the economic soundness
of the plan - and the plan can only be agreed with the support of citizens.
"We support the Chapter 9 model" said Pettifor, "because
it democratises the process for resolving a public debt crisis".
"Any proposal for an international insolvency mechanism should follow
the US precedent, and also include a "right to be heard" for
citizens like those in Argentina and Pakistan, who are now obliged to
bear the overwhelming burden of public debt - but who have never been
party to debt negotiations".
end.
Notes: for further information on Chapter 9 please search for articles
on this site. Alternatively visit Professor Kunibert Raffer's own site
at: http://www.mailbox.univie.ac.at/~rafferk5/
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