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Heavily indebted States must not sideline their human rights obligations

The Guiding Principles on foreign debt and human rights which the UN Independent Expert on the effects of foreign debt, Cephas Lumina, took to the June session of the Human Rights Council follow decades of debate and discussion in the international community, a debate which the Expert describes as “profoundly divisive”.

However, as Lumina notes, those efforts yielded little, with foreign debt increasing in many countries and continuing “to constrain not only their development prospects, but also to undermine their capacity to establish the conditions for the realization of human rights, particularly economic, social and cultural rights.”

The Guidelines, which have been revised after two years of global discussion and debate recommend that States and the organizations acting as lenders, both assess the impact of their contractual arrangements.

Servicing these loans has, in some instances, led to huge national debt which, in turn, have led to the introduction of drastic cuts in public spending as Governments struggle to meet the repayments. According to the Guidelines, all parties should take these potential consequences into account before the loans are agreed.

Lumina concedes that debt financing can, in certain circumstances, be justified to boost economic development. Nonetheless, he says the evidence shows that “in many of the poorest countries the fulfillment of debt service obligations is often undertaken at the expense of social investment.”

Lumina recently visited Latvia, a country recovering from a severe recession brought
about by large debt exposure and an unsustainable current account deficit coupled with a fall-off in demand.

In 2009, the country’s growth plummeted by more than 15 percent, house prices halved,  and the public sector was severely cut back to meet the bail-out terms agreed by the Government, the International Monetary Fund (IMF) and the European Commission (EC).

The Government, the IMF and EC were responding to forecasts of a foreign debt burden maturing in 2009, to a value equal to 320 percent of foreign reserves.

Lumina assessed the impact of the external debt burden and austerity measures under the EC/IMF stabilization programme. He noted the harsh impact on the living conditions of the population, with an exponential rise in unemployment and emigration of the economically active population.

However, the Independent Expert said the Latvian Government had developed a safety net, with the support of partners such as the European Union and the World Bank, to protect the most vulnerable in the community from the full effects of the budgetary cutbacks.  The social security measures include, a guaranteed minimum income benefit, the extension of the period for receipt of unemployment benefits, a public works scheme, free health care to those with insufficient income, housing benefits and transport support.

Lumina said he hoped the government would be able to meet its repayment schedule without additional spending cuts.

The principal aim of the Guidelines on foreign debt, Lumina says, is to ensure that human rights considerations are at the forefront when decisions are being made about the terms and conditions of loans from external sources and that both creditors and debtors take responsibility for the consequences of those arrangements.

“The mutual accountability of creditors and debtors for their decisions is an important precondition for the establishment of an equitable global financial system,” he says in the report.

Lumina is clear that both “creditors and debtors share responsibility for preventing and resolving unsustainable debt situations.” Creditors must exercise due diligence in assessing the creditworthy status and ability of the borrower to repay the debt and must not lend where it is clear the funds will be used for private purposes or on projects which are non-viable.  Debtor States are also obliged to use the funds in the public interest and repay the loans in a timely fashion.
 
The Guidelines include proposals for all countries to construct legal and institutional frameworks to ensure transparency and accountability in borrowing and budgeting decisions.

In the event that heavily indebted States require assistance, the conditions sometimes attached to debt relief efforts must not compromise the provision of basic services. Debt-related issues must be resolved, Lumina says, by an independent body. He recommends the establishment of an “international debt workout mechanism to restructure unsustainable debts and resolve debt disputes in a fair, transparent, efficient and timely manner.”

23 July 2012

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