|11 November 2009
On November 11th, UNCTAD convened a day long discussion on illegitimate debt with government officials from more than 90 countries in Geneva. It marks the beginning of a three year UNCTAD-led project aimed at "promoting responsible lending and borrowing, including developing criteria for and assessing the legitimacy of sovereign debt".
The conference featured two panel discussions. The first panel included former Russian Prime Minister Mikhail Kasyanov, Zimbabwean Senator Obert Gutu (Movement for Democratic Change), Mexican Governor Dante Delgado Rannauro and Henrik Harboe of the Norwegian Ministry of Foreign Affairs, focused on the concept of illegitimate debt and the ex post approach for assessing illegitimate debt. Kasyanov, Gutu and Rannaura used their experiences from Russia, Zimbabwe and Mexico as examples of why a discussion on illegitimate debt and responsible finance is welcome and needed. Harboe presented the Norwegian government position on illegitimate debt saying that although the government does not necessarily share all the definitions of illegitimate debt presented by civil society, it does support a comprehensive approach that includes both binding rules for responsible lending and borrowing and an independent debt work-out mechanism to assess the legitimacy of debt. In particular, he called on developing country governments to become more active in this debate as the Norwegian government is very interested in learning more about their perspectives on this.
The second panel included John Williamson of the Peterson Institute for International Economics, Lee Bucheit from the law firm Cleary, Gottlieb, Steen & Hamilton, Secretary General Claire Cheremetinski of the Paris Club and Neil Watkins of Jubilee USA. It discussed the possibility of an ex ante approach, including the formulation of a set of criteria and guidelines. While Williamson made the case for why an ex ante loan sanctions mechanism against specific governments considered off-limits for lending is the approach that will come with the least risk of increasing interest rates and is the most likely to gain political support, Bucheit pointed to merits and challenges with both the ex post and ex ante approach.
Cheremetinski argued that the Paris Club had proven a very efficient tool to deal with developing country debt, while Watkins challenged this saying that current mechanisms are far from sufficient to deal with the current debt crisis or prevent the build up of new unsustainable and illegitimate debt in the future. He called for a broad approach to illegitimate debt and responsible financing, referring to the principles for responsible financing developed by the debt campaigners, including the EURODAD Charter on Responsible Financing. While emphasizing the sovereign right of developing countries to conduct debt audits and repudiate debt on the basis of illegitimacy, he also made a strong call for the establishment of an independent debt-work out mechanism.
Both panels where followed by discussions that reflected a substantial interest among participants on the issue, with representatives from a number of developing and developed country governments expressing strong support for the UNCTAD project. Several developing country officials used the opportunity to send a clear message to creditors that they consider much of the debts they are servicing as illegitimate.
Following the conference, UNCTAD reported that several developing and developed country governments had expressed their interest in supporting the three year project on responsible lending and illegitimate debt which has been initiated with the support of the Norwegian government.
Civil society is represented in the project through an expert group which held its first meeting on November 12th. The group is made up of 20 representatives from academia, law, private sector, international institutions and civil society. Among civil society, there are representatives of Jubilee South, LATINDAD, Lutheran World Organization and EURODAD. The aim of the expert group is to propose principles for responsible lending and borrowing, criteria for defining illegitimate debt and possible models for an independent debt work out mechanism. It will meet several times over the course of next year and EURODAD will keep the network informed.
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