European Campaign

During his presidency of the G8, the French President promised he would place debt cancellation high on its agenda and submit proposals on the issue to the other G8 members. United by the reference to the international law of human rights, we debt campaigners from G7 countries would like to take this opportunity to share our concerns and make some proposals of our own.

France has consistently argued that the G8 should play its full role in meeting internationally-agreed commitments, in particular the Millennium Development Goals (MDGs). Even the goal of halving extreme poverty, which numerous NGOs consider insufficient, will not be reached by 2015 without a considerable global effort by the international community to mobilize new financial resources. Greater debt relief, if on top of existing ODA flows, could play an important role in this respect.

As far as the HIPC initiative is concerned, France’s key priorities are (A) the enhancement of this initiative and (B) the achievement of debt sustainability beyond completion point. Yet, the International Financial Institutions (IFIs) have admitted that this initiative has so far failed to make the debt of HIPC countries sustainable.

In order to ensure debt sustainability beyond completion point, we believe it is necessary to break with the principle of prioritising debt service over the fulfilment of basic human needs. We argue in favour of an approach based instead on a country’s ability to fund human development. This approach sets as an inviolable principle the satisfaction of basic needs. In this respect, we call for an independent review of debt sustainability to be urgently undertaken.

In Monterrey, the international community committed itself to linking debt sustainability analysis to the funding required to achieve the MDGs. G8 countries, who have been holding a sizeable part of debt, should fulfil this commitment and be prepared to accept the consequences of such a human development approach to sustainability:

· The opening-up of debt relief to all countries. Debt threatens the development of many countries, including some that are not eligible to the HIPC initiative. In no country should debt compromise the ability to meet basic human needs. A human development approach should underlie the rationale of the “approach for dealing with non-IDA countries within the Paris Club” which G7 Finance Ministers want to develop (2003, April 12^th).

· 100% debt cancellation for most HIPCs. Without cancellation of their entire debt, most HIPCs will not be able to achieve the MDGs. A 100% cancellation would at the same time provide those countries with a fresh start.

· A higher multilateral contribution to make effective this debt cancellation. G7 countries have promised to cancel total bilateral HIPC debt. As a result of the HIPC initiative, the IFIs have become the main HIPC creditors. Given the scale of human development needs, the IFIs’ majority shareholders, which belong to the G8, ought to clearly declare themselves in favour of a greater multilateral commitment, including in many cases full debt cancellation by the IFIs, without imposing any conditionalities that would affect basic human rights. The IFIs are in a position to contribute significantly to these debt cancellations from their own resources, without in any way jeopardizing future commitments[1].

The occurrence of financial crises in the 1990s, and specifically the Argentine crisis, has evidenced the need for the reform of the international financial system. The problem is primarily structural. It is exhibited by the asymmetry between creditors and debtors in the treatment of international debt, which must be handled as part of a framework based on debtor and creditor co-responsibility in debt accumulation, the illegitimacy of certain debts, and the inviolability of fundamental economic, social and cultural rights.

The fact that a debate has taken place recently on the IMF-launched Sovereign Debt Restructuring Mechanism (SDRM) shows the acknowledgement that a negotiated debt resolution framework is necessary. To that extent and although we consider that this mechanism does not include the indispensable conditions for a fair and transparent debt treatment, we welcome it favourably.

“Recognizing that it is not feasible now to implement the SDRM proposal”, G7 Finance Ministers asserted on April 12^th that “work should continue on issues raised in the SDRM discussions”. In our view, this should be the occasion to reconsider the issue in the light of civil society’s alternative proposals. In that respect, we are arguing for the establishment of an international insolvency process that is both fair and transparent, notably modelled after chapter 9 of the US-Insolvency Code (conceived for debtors with governmental powers).

- The third body shall be neutral. Debt sustainability shall be judged by this independent panel and the role of the IMF shall be restricted to that of a lender.

- Independent debt sustainability analysis shall be based on human development financing needs.

- All concerned parties shall participate in a transparent process. In particular, this process should be open to civil society groups of debtor countries.

- The subsistence level shall be protected and the standstill measure shall be automatically triggered.

We encourage debtor countries to seek protection through an arbitration process, on a timely basis, before debt crises occur.

We welcome the recognition by the U.S. Treasury secretary, John Snow, concerning the Iraqi debt, that a debt contracted by a dictator should not be payable by the population after the regime falls. We would like to remind the G8 that there have been more cases of odious debt, for instance Nigeria and Indonesia. The debt of all countries should be treated on an equal basis.

[1] Eurodad, “Going the Extra Mile: How and Why Creditors Should Go Further with Debt Reduction for the Poorest Countries”, February 2002.