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Multilateral legal framework for debt restructuring processes: views by the Independent Expert

On 26 January 2015, the United Nations Independent Expert on foreign debt and human rights, Juan Pablo Bohoslavsky made a submission to the ad-hoc committee established by General Assembly resolution 69/247 tasked with elaborating through a process of intergovernmental negotiations, a multilateral legal framework for sovereign debt restructuring processes.

The Independent Expert proposed six human rights benchmarks that States should consider when discussing a multilateral legal framework for debt restructuring. He drew the attention to the Guiding Principles on Foreign Debt and Human Rights (A/HRC/20/23), the Guiding Principles on Business and Human Rights (A/HRC/17/31), the UNCTAD Principles on Responsible Sovereign Lending and Borrowing, and various proposals to improve international rules related to debt restructuing processes, including the creation of an Independent Debt Dispute Resolution Mechanism, as suggested by his predecessor, Cephas Lumina.  Furthermore he recalled Human Rights Council resolution 27/30 inviting States participating in the negotiations on a multilateral framework for debt restructuring to ensure that such framework will be compatible with existing international human rights obligations and standards.  He proposed the following six human rights benchmarks:

  1. The new legal framework should include an explicit reference that debt restructuring must be compatible with existing human rights obligations and standards.
  2. Risk assessments and debt sustainability analysis carried out prior to a debt restructuring need to include human rights impact assessments.
  3. The future multilateral framework on debt restructuring should address adequately negative human rights impacts caused by hold outs.
  4. Debt restructuring should ensure that minimum essential levels of the enjoyment of economic, social and cultural rights can be satisfied even in contexts of financial crisis and retrogressive measures affecting the enjoyment of these rights should be avoided.
  5. The human rights principles of impartiality, transparency, participation and accountability should be reflected in a new legal framework for debt restructuring.
  6. International and regional human rights protection mechanisms, national human rights institutions and civil society organisations should be able to play a role in the decision making process of debt restructurings.

Read the complete submission

On 5 September 2014, the United Nations Independent Expert on foreign debt and human rights, Juan Pablo Bohoslavsky, sent a letter to the Chairman of the Group of G77 and China, expressing his views on an initiative in the General Assembly to establish an international legal regulatory framework for sovereign debt restructuring processes. In his letter the Independent Expert recalled that the issues of foreign debt, debt relief, debt restructuring, and excessive demands by so-called “vulture funds” have for many years been on the agenda of the Independent Expert and as well subject of resolutions of the Human Rights Council, including its most recent resolutions 20/10 and 23/11.

"Vulture fund litigation not only prevents heavily indebted poor countries from using resources freed up by debt relief for their own development programs,  but also complicates debt restructuring processes as they create a fundamental moral hazard problem", Juan Pablo Bohoslavsky argued. "Those who do not accept a debt restructuring and litigate against the sovereign debtor will be fully repaid, while those creditors that made an effort and accepted the fact that the debt had to be reduced will be the only ones suffering from the haircut. Given that risk, creditors will probably be much more reluctant to conclude debt restructuring agreements with sovereign debtors, therefore, crises will be longer, more difficult to resolve, and with less predictable outcomes" warned the Independent Expert. "Financial markets need more prudence, not less", said Mr. Bohoslavsky.

Drawing attention to the Guiding Principles on Foreign Debt and Human Rights (A/HRC/20/23) and the Guiding Principles on Business and Human Rights (A/HRC/17/31), the Independent Expert stressed that international human rights law should inform discussions about a multilateral convention from its inception.