Rethinking Bretton Woods | Fri, Oct 1, 2004
A paper by the international alliance of Catholic agencies, CIDSE, and Caritas Internationalis, supports an alternative debt restructuring mechanism that would be a "fair and transparent procedure for fair and equal relationships between debtors and creditors."
Debt crises have been met by creditors with a series of piecemeal but ultimately unsatisfactory mechanisms. The last example is outcomes of which are to be evaluated in 2004, when the initiative according to its prescheduled “sunset clause” expires. Notwithstanding some positive results especially in some areas of social spending the Highly Indebted Poor Countries (HIPC) II initiative will not provide the definite exit solution for heavily indebted poor countries it was meant to be. The growing frequency and persistence of developing country over-indebtedness is symptomatic of a deeper problem of political imbalance, in which creditors have control over the timing, pace and depth as well as economic and political conditionality of debt relief mechanisms.
The same basic situation is observable in indebted Middle Income Countries (MIC). Many of them have unsustainable long-term debt stocks, Argentina being only the most famous recent case. But while the IMF tried to address the problem of the deficiency in creditor coordination (especially between public and private creditors) with its SDRM initiative (Sovereign Debt Restructuring Mechanism) the central point of the pre-sent non-comprehensive procedures was missed: the non-participation of those who are most strongly affected by debt crises – the population of indebted countries, especially the poor.
This situation of systemic power imbalance fuels the vicious circle of over-indebtedness, poverty and eco-nomic underdevelopment thus perpetuating the critical living conditions of hundreds of millions of people. It also undermines the sovereignty of poor countries and their populations and violates their dignity and their right to self-determination.
CIDSE and Caritas Internationalis therefore consider this imbalance as a serious obstacle to a sustainable solution to the ongoing debt crisis of poor countries and to more justice at the global level. As Christian organisations committed to international solidarity and human liberation, we call for the cancellation of unsustainable debt that prevent individuals and communities from realising their full human potential and specifically, those who suffer most in the present situation: the poor. We share the concern of many of our partners in the South that only a fundamental change in the international management of external debt and over-indebtedness can lead to a sustainable and just solution for this. We, therefore, strongly support the idea and the implementation of a Fair and Transparent Arbitration Process (FTAP) where creditors and debtors alike (including civil society) guided by a neutral arbitration body negotiate and decide the conditions for a sustainable exit from over-indebtedness.
More than forty years ago Pope John XXIII in his major encyclical Pacem in terris stressed some insights that contain valuable ethical guidance to the present day.
1. Political and international affairs and the multiplicity of arrangements which constitute the international economic, social and political order need to be ruled by moral values recognisable by all people.
2. The increasing recognition of human rights, grounded in the dignity of all human beings offers great hope for a better solution to world crises.
3. There is an urgent need to strive for the creation of international forms of government to ensure the ability of a globalising world to truly work for the common good.
In developing our position with regard to a Fair and Transparent Arbitration Process (FTAP) we lean on these insights and their subsequent development.
This paper begins with a small introduction on the catholic ethical views on debt underlying our demand for an FTAP (chapter I). It then highlights the background (chapter II) and recent political developments (chapter III) in the debate for a more transparent and power balanced debt-workout mechanism. The paper concludes with the CIDSE/CI position on the FTAP proposal (chapter IV).