Holy See: Developing country debt should be "put in context"
(Vatican Radio) Monsignor Richard Gyhra, Chargé d’Affaires a.i. of the Permanent Mission of the Holy See to the United Nations and Other International Organizations in Geneva, on Monday “the debt of developing countries must be placed in a broader context of economic, political and technological relations which have brought an increased interdependence between countries, as well as the need for international collaboration in pursuing the objectives of the common good.”
He was speaking at a session of the UN Human Rights Council in Geneva.
“This interdependence should give rise to a new and broader concept of solidarity which respects the equal dignity of all peoples, rather than leading to domination by the strongest, to national egoism, to inequalities and injustices,” Msgr. Gyhra said.
The full text of Msgr. Gyhra’s remarks are below
Intervention by Msgr. Richard Gyhra, Chargé d’Affaires a.i. of the Permanent Mission of the Holy See to the United Nations and Other International Organizations in Geneva
at the 31st Session of the Human Rights Council
Item 3 - Interactive Dialogue on Human Rights and Foreign Debt
Geneva, 7 March 2016
Mr. President,
The scale of the 2008 crisis has left many governments struggling to offset the effects of financial retrenchments in banks, businesses and households, as they seek to repair their balance sheets. Since the crisis, many developed economies have turned to “unconventional” monetary policy instruments in their efforts at recovery. Consequently, its effects have been felt most severely there, but the subsequent collapse of aggregate demand in those countries is still working its way through the global economy and in particular on the Least Developed Countries.
We all know, however, the history of the current international debt situation. It is a history with a specific beginning in particular economic circumstances. We have to recognize that this history has been marked by two determining factors: irresponsible spending, but also irresponsible lending. Within individual debtor countries there is corruption, poor administration of public monies or the improper utilization of loans received. Lenders have also invested irresponsibly and predatory hedge funds have taken advantage of both developed and developing countries in financial crisis. The resolution of the international debt problem is an economic question, but is also a question of political will. The International community cannot ignore this fact. As the Holy Father told the United Nations last year, “The International Financial Agencies should care for the sustainable development of countries and should ensure that they are not subjected to oppressive lending systems which, far from promoting progress, subject people to mechanisms which generate greater poverty, exclusion and dependence.”[1] While reaffirming the principle that debts must be repaid, ways must be found that do not compromise the “fundamental right of peoples to subsistence and progress.”[2] Real solutions to the international financial crisis must include the implementation of responsible lending and borrowing principles in banks and international financial institutions. These principles have been developed by the UN Conference on Trade and Development and investigated by the special UN expert on debt and human rights.
The debt problem is linked also with that of adjustment, which is in turn linked to transition. By their nature, both these terms point to something, to some important aim, towards which we are working. Transition and adjustment must also be looked at in a people-centred manner. We wish to move towards democratic, socially responsible market economies, so that the needs of people can be better addressed, so that people can make the fullest use of their potential. People are prepared to accept hardship when they know that they are on the road to something better. But when the initial sustained impact brings with it a situation in which the poorest are the first to suffer even more, we cannot be surprised when the very goal towards which we are moving becomes discredited in their eyes. Adjustment or transition also means that those who were marginalized in the older system must be provided with the training needed to make them the protagonists of a new one.
As pointed out by the Special Rapporteur, there “are manifold linkages between inequality, private and sovereign debt and the occurrence of financial crises”. Inequality may affect sovereign debt both directly and indirectly, since the income tax base of the State concerned may be rather small, at least if income taxation is not progressive. This diminishes sovereign revenues and consequently makes the State more dependent on borrowing. Thus inequality contributes in many cases to sovereign debt. Facing this reality “we should be particularly indignant at the enormous inequalities in our midst, whereby we continue to tolerate some considering themselves more worthy than others… as if they had been born with greater rights.”[3]
The traditional strategy of the International Monetary Fund in providing assistance to countries in situations of external payment difficulties has had the aim not only of helping debtor countries keep up with their repayment obligations vis-a-vis foreign creditors, but also of restoring the confidence of financial markets through the policy conditionality attached to its lending. Through this approach, restoring investor confidence is considered to be a precondition for allowing the exchange rate to depreciate. To block the growth of the debt, which is a consequence of the global economic crisis, developing countries could utilize an agreed multilateral mechanism for a temporary standstill on debt repayments, that would greatly help orderly debt workouts. This mechanism would involve the private sector in the resolution of financial crises in emerging markets, it would influence investor and creditor portfolio decisions. This would also help reduce destabilizing capital flows.
Once crises have broken out, the resolution of sovereign debt has also often been a time-consuming affair that has been damaging to the interests of both private creditors and sovereign debtors. In the absence of an impartial institutional framework, lenders have become de facto judges on their own claims against borrowers. Given these realities a clear set of international rules could be of benefit to all: they could force holdout creditors to accept terms of debt restructuring, impose stays on litigation during restructuring negotiations and provide for the extension of new credits during restructuring exercises. Proposals for the introduction of an orderly international debt workout mechanism for sovereign debt, modeled on national insolvency procedures, has already been realized by UNCTAD since the early 1980s.
The debt of developing countries must be placed in a broader context of economic, political and technological relations which have brought an increased interdependence between countries, as well as the need for international collaboration in pursuing the objectives of the common good. This interdependence should give rise to a new and broader concept of solidarity which respects the equal dignity of all peoples, rather than leading to domination by the strongest, to national egoism, to inequalities and injustices. As the Holy Father has stated, “It must never be forgotten that political and economic activity is only effective when it is understood as a prudential activity, guided by a perennial concept of justice.”[4] Solidarity implies an awareness and acceptance of co-responsibility for the causes and the solutions relative to international debt. Co-responsibility will help to create or restore relations based on trust between nations (creditor and debtor) and between the various agents (political authorities, commercial banks, international organizations) and thus will promote cooperation in the search for solutions. Mutual trust is an indispensable value which must be constantly renewed[5].
Mr. President,
In conclusion, inequalities can be reduced through taxation and transfers, the latter including in cash and in kind. Governments “may wish to consider a combination of progressive income taxes and highly redistributive transfers to decrease income inequality and its impact on social development”[6]. Efforts should be undertaken to 1) promote responsible lending and borrowing; 2) prevent both corporate tax avoidance and the outflow of illicit funds from debtor nations and 3) create a fair and transparent international debt resolution process. The Holy See would like to reiterate that the right to development must be taken into account when considering questions related to the debt crisis of many poor countries[7]. Eliminating poverty means, among other things, permitting all people, especially women and persons with disabilities, to be active participants in the economy and in society. The effectiveness of our economic systems to meet the needs of people must be constantly evaluated. A system which leaves substantial sectors of a nation or a community on the margins, unable to contribute actively with their talents to society and to the economy, has failed to provide the entire community the minimal conditions for a quality welfare system. The Holy See continues to call for the creation of a model of market economy capable of including within its range all peoples and not just the better off. It calls for stronger efforts to build a more human world for all, a world in which “all will be able to give and receive, without one group making progress at the expense of the other”[8]. In this sense, States and the International community should urgently implement financial market reforms in order to combat and prevent financial instability, excessive debt and financial crises, and build an inclusive economy that upholds the dignity of all people.
Thank you, Mr. President.
[1] Pope Francis, Statement at the UN General Assembly, 25 September 2015.
[2] Pope John Paul II, Encyclical Letter Centesimus Annus, 35: AAS 83 (1991), 838; cf. also the document At the Service of the Human Community: an Ethical Approach to the International Debt Question, published by the Pontifical Commission “Iustitia et Pax”.
[3] Pope Francis, Encyclical Letter “Laudato si’”, n.90.
[4] Pope Francis, Statement at the UN General Assembly, 25 September 2015.
[5] Introduction of At the Service of the Human Community: an Ethical Approach to the International Debt Question, published by the Pontifical Commission “Iustitia et Pax”.
[6] Report of the Secretary-General on the role of the United Nations in promoting a new global human order and an assessment of the implications of inequality for development (A/67/394), para. 56.
[7] John Paul II, Apostolic Letter Tertio Millennio Adveniente, 51: AAS 87 (1995), 36; John Paul II, Message for the 1998 World Day of Peace, 4: AAS 90 (1998), 151-152.
[8] John Paul II, Encyclical Letter Sollicitudo Rei Socialis, 44: AAS 80 (1988), 279.
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