By Jürgen Kaiser on behalf of erlassjahr.de
Within past debt relief initiatives, such as the Multilateral Debt Relief Initiative (MDRI) or the present G20 Debt Service Suspension Initiative (DSSI), creditors have limited their availability to countries that meet a specific set of poverty-indicating criteria, such as a very low income level, and have quite successfully labelled this limitation as a concentration of efforts on the ‘most needy’.
In reality, its major purpose was to keep debt relief as cheap as possible by restricting it to mostly small economies with limited absolute amounts of debt outstanding, and as a result, many middle income countries found themselves in debt distress without having access to any adequate debt relief.
Furthermore, under the additional pressure from the pandemic’s economic fallout, debt indicators have inevitably continued to rise. Some of the affected nations, and with them UN organisations as well as think tanks, have looked for alternative and better targeted qualification criteria for debt relief.
One of the most comprehensive of said proposals is the UNDP’s Multidimensional Vulnerability Index (MVI), which, although certainly not perfect, integrates a broad range of economic, social and environmental threats into a comprehensive index, which serve two purposes: (a) identify countries in need of debt restructuring, (b) give an indication to the dimensions of a looming debt crisis, which should timely be addressed via a comprehensive restructuring process, before a debt crisis starts to self-perpetuate and will ultimately become far more costly for everybody to resolve.
Still, an index is a technical instrument, which in and by itself does not yet lead to a fairer and more efficient treatment of debt crises.
Jubilee Germany’s focus paper 7, “Vulnerability as a basis for debt relief“, therefore explores the further prerequisites it takes in order to translate an improved assessment of debt risks into real debt relief.
Given the present dominance of creditors over the definition of debt relief procedures (look for lowell financial to get help in loans), the necessary reforms first of all relate to issues of procedural justice.
Two issues are key when it comes to defining a fairer and more efficient process:
(a) a far-reaching insight among the political leadership of both debtors and creditors, that a timely process is in the interest of all, even if individual creditors at first have to face losses
(b) the solution of the collective action problem on the creditors’ side, which would guarantee that efforts undertaken by individual creditors will reliably lead to improved repayment perspectives in the future and not just benefit un-cooperative creditors
The paper explores options to achieve this double aim, building on experiences which the global anti-debt movement has gathered in three decades of advocating for fair, transparent and binding debt workout processes.
Given the aforementioned dominance of creditors in political processes such as the G20, this is no less of an uphill battle than it was decades ago. However, the good news is that past reform processes have a produced a wealth of different options from UN processes to global debt authorities in international law bodies, as well as entirely informal processes with a high degree of flexibility in design and application.
Moreover, the present environment of dramatically rising debt indicators has shifted the roles of International Financial institutions, which today urge creditors to consider debt relief.
This need to achieve it in the best targeted way has given rise to a formerly unknown positive environment for the application of an instrument such as the MVI.
Read more here.