A CATHOLIC PERSPECTIVE

Transcription

1 A CATHOLIC PERSPECTIVE ON JUST DEBT SOLUTIONS ETHICAL PRINCIPLES IN FAVOUR OF FTAP An IJ D Debt Technical Working Group Discussion Paper April 2003 Séamus O Gorman

2 2 ABSTRACT This paper responds to a statement of the managing director of the IMF that ethical principles, principles common to all civilisations are important, yes, essential for an international institution such as the IMF. It explores what light can be shone on a concrete policy proposal such as the Sovereign Debt Restructuring Mechanism [SDRM] by an ethical analysis which derives from the tradition of Christian reflection embodied in Catholic Social Teaching. It outlines four core insights from this tradition: the universal destination of the goods of the earth; the limits of the market to achieve human ends; the responsibility of governments to work for the common good; and the right of people to participate in decisions that effect them. It argues that this framework gives strong support to the case made by many who argue that the international community should take the opportunity provided by the present discussion on debt crisis mechanisms to go beyond the modest reforms of the SDRM to establish a Fair and Transparent Arbitration Procedure [FTAP] to deal with the problem of recurring international debt crises.

3 3 1. Introduction: the IMF Search for Ethical Globalisation As we try to harness the forces of change to ensure the benefit of all world citizens, I believe that guidance provided by fundamental ethical principles, principles common to all civilisations are important, yes, essential for an international institution such as the IMF. Some people might be surprised to find that the author of these words was the Managing Director of the IMF, Horst Köhler. They were spoken last September in remarks at the opening of an exhibition at the IMF on World Religions-Universal Peace-Global Ethics. 1 During his talk he acknowledged that economics and finance do not exist in a vacuum, but are expressions of human endeavour. Since it is clear that the decisions made at the IMF affect people, even on the other side of the world he went on to say it is our responsibility, as human beings, to ensure that those decisions always rest on a solid ethical foundation. In an earlier speech to a Conference on Humanising the Global Economy organised by the Catholic Bishops Conferences of USA, Canada and Latin America, in January 2002, he had expanded on some of the principles he thought were required. He stressed the importance of international co-operation which should be based on shared principles and rules. In order to be aware of how far he went it is worth recalling some of the important principles he mentioned: 1. Countries need to have trust that their voices will be heard and their interests recognised. 2. There must be trust that each country will live up to its own responsibilities and take into account the effects of its actions on others. 3. International decision-making should be seen to respect national and local responsibilities, religions, cultures, and traditions. 4. A global economy needs global ethics, reflecting respect for human rights but equally recognition of personal and social responsibility. 2 In the same speech Mr.Köhler had strong and explicitly ethically based judgements to make on various key aspects of the international economic policy climate. He urged the Catholic church to engage, as it had in relation to the debt campaign, in supporting the case for increased aid as a concrete expression of solidarity between wealthy nations and the world s poorest citizens. Of rich countries obstruction of access to their markets he made the forceful moral judgement. It is unconscionable for the United States, Japan, and the European Union to spend hundreds of billions of dollars on agricultural subsidies to maintain marginal activities for the benefit of a small segment of their population, while undermining agricultural sectors that are central to peace and development in poor countries The Catholic Search for Ethical Debt Mechanisms The International Jesuit Network for Development [IJND] is a network with member institutions around the world. Too often our members see clearly the tragic human cost of development models and policy proposals and reforms which seem incapable of adequately facing the suffering they cause, or at least fail to relieve. For us it is very encouraging to see Mr. Köhler accept the need for international institutions to be

4 4 guided by ethical principles. It allows a welcome opening to those of us who would wish to stress that economic policy proposals at international levels need to be judged in terms of how well they allow the international community to serve real human beings, especially the most impoverished. Mr Köhler highlighted in particular the importance of promoting ethical arguments in relation to aid and trade. In IJND we would be happy to agree that there are vitally important ethical critiques to be made of international policy on these fronts. However, in this paper we want to offer an ethical response to another important area of policy debate, the ongoing discussions in relation to a Sovereign Debt Restructuring Mechanism [SDRM]. In this debate the IMF itself is also a crucial player. During the past eighteen months a number of proposals have been put forward in order to deal better with the resolution of debt crises. The broad terms of this discussion are well known. Some key aspects of these proposals can be highlighted. i) Alternative approaches to debt crisis resolution 1. Private creditors with US government backing, have been more favourable to efforts to develop Collective Action Clauses [CACs]. In this proposal the problem of recurrent debt crises needs relatively little innovation. They recommend a framework for early consultations between debtors and key creditors. For them debt crises can best be dealt with by putting CACs into bond contracts which will provide a predictable and market based way of dealing with crises should they arise. 4 They are strongly opposed to the IMF s SDRM. 2. The IMF, led by Anne Krueger, its First Deputy Managing Director has been proposing the SDRM since the end of November The proposal goes further than that of the private sector. The IMF are less confident that the market provides sufficient incentives to reach mutually advantageous solutions. They also believe that while CACs can play a role, more is needed. They make the case for the establishment of a legal statutory framework to deal with the problem. The main focus is on achieving better co-ordination among creditors, with the possibility of restructuring agreements being reached by a super majority which binds all creditors. The debt the IMF has in mind is that of middle income countries. The problem of poorer countries it leaves to the HIPC framework. The SDRM explicitly excludes IMF debt. It envisages the setting up of a Sovereign Debt Dispute Resolution Forum, but very strict limits are placed on the range of its powers Many development GOs and networks together with various academics such as University of Vienna Professor Kunibert Raffer - have been proposing various versions of Fair and Transparent Arbitration Procedures [FTAP]. These proposals all have in common the need for independent arbitration to establish what level of debts can be paid consistent with commitments to achievement of basic human rights. 6 They wish to see such a mechanism being able to address debt of middle income, but also poorer countries. They also hold that all debt, private, government and that of International Financial Institutions [IFIs] should be addressed within this comprehensive framework. There is explicit requirement that decision making power be shifted to a neutral ground between debtors and creditors.

5 5 In more recent times the French have introduced a proposal which would see steps towards the development of an internationally recognised Code of Conduct for addressing debt crises. There are other voices which tend to dismiss the debate altogether. They argue that what is needed is cancellation or repudiation rather than some new mechanism to tackle the problem. For them accepting arbitration means accepting the legitimacy of debts. ii) Advocating for the FTAP alternative This paper aims to offer to the discussion a perspective on why it makes sense from a Catholic point of view, 7 to advocate in favour of proposals to establish a fair and transparent arbitration procedure. 8 Our concern is two fold. Catholics, together with those with a basic commitment to the cause of global poverty reduction, need to engage with and work out what their vision of a more just world means in relation to the real world of global economic policy debate. It is here that actual decisions are taken that have a major impact on the kind of world we are creating. We also wish to outline how our vision of a world where the international community is genuine in its commitment to tackling the challenge of poverty eradication makes us as Christians advocate for one concrete proposal. With Mr. Köhler we share the commitment to ethical principles. The validity of such a commitment is tested by the extent to which actual policies meet the standards set by such principles. All the proposals share the conviction that there is a need to make some changes so that recurrent financial crises can be handled in a less disruptive way. In our view what makes the FTAP proposal so valuable is that it provides a way of matching ethical standards - Christian but also more widely based ones - in a way both the CAC and SDRM proposals do not. Taking ethics seriously means being willing to lay out and stick with the case for a certain way of tackling a problem even if, as is currently the case, there is little indication that there is adequate backing from those with power to turn such a proposal into reality. In this context it is worth remembering the words of John Paul II in his 1987 encyclical Sollicitudo rei socialis on the virtue of solidarity. For him the deeper our appreciation of our global interdependence the greater is our need for a genuine solidarity. This [solidarity] then is not a feeling of vague compassion or shallow distress at the misfortunes of so many people, both near and far. On the contrary, it is a firm and persevering determination to commit oneself to the common good; that is to say to the good of all and of each individual, because we are all really responsible for all. 9 If we really hope for a globalisation more clearly shaped by ethical principles, we also need to deepen the virtues such as solidarity which can sustain that hope. The fact is that the international community and the policy debate on debt is dominated by the politics of power. At the core of ethical commitment throughout human history is a refusal to accept that might is right. To address the anti developmental impact of power imbalances the international community needs to provide some mechanisms which can counteract these imbalances. In our view, a key step in this direction would be to provide for a fair system of arbitration to determine what level of debts ought to be paid by the poorer debt distressed nations of the world. Such a step is really only the application at the international level of the almost universally recognised principled thinking which underlies bankruptcy legislation throughout the world. 10 This FTAP framework could constitute a major step in putting

6 6 an end to the failed history of informal responses to debt crises. Again and again these have sacrificed the basic human rights of the most vulnerable to the mercy of decisions by powerful creditors. We call for the FTAP as the best means to reach decisions about solutions to debt crises, which can offer a fair solution to the conflict between powerful creditors and vulnerable debtors. Many aspects of the IMF s SDRM proposal can be welcomed. These include the fact that the SDRM acknowledges: that the ongoing problem of debt crises requires innovative responses; the potential relevance of bankruptcy models; the need for debt reduction; in principle the need for some forum for independent arbitration in the process of dispute resolution. 11 We also welcome the IMF s efforts of the past year to engage people in discussion of their proposal. However, our view is that the good elements contained in their proposals would be much improved by shaping a model which contains key elements of the FTAP. Then, we think the new framework would be able to play an effective part in enabling the international community to establish a framework which will allow us to reach just and effective solutions to debt crises. 3. Foundations of Catholic Reflection The Catholic community comes to these debates with a long tradition of trying to work out how to organise and structure social and economic life in ways that liberate rather than oppress people. As Christians we do not of course claim that there is a direct line to what Jesus would have to say about the more technical aspects of solutions to the international financial crises of the modern world. On the other hand we are united in a faith that recognises God in Jesus to some extent precisely because his life and teaching brought about a real transformation in the lives of the vulnerable and most easily forgotten, that is of the poor. The Gospel of Matthew continues to challenge our fundamental moral sensitivity with the memory that Jesus grounded his identity on the real difference his life meant for the poor. Asked by the disciples of John the Baptist whether he is the one who is to come, Matthew records his answer. Go back and tell John what you hear and see; the blind see again, and the lame walk, lepers are cleansed, and the deaf hear, and the dead are raised to life and the Good News is proclaimed to the poor. (Mt 11:4-6) In a world where poverty crucifies so many, the retelling of the stories of God s preferential option for the poor inspires us to seek out historical opportunities which can reverse this ongoing scandal of the cross. The principles of Catholic Social Teaching [CST], with their roots stretching back to gospel times, emerge from processes of complex and passionate debates about how best to organise social and economic life. 12 The principles have their roots in the real historical struggle of people to find ways of humanising economic life. Such principles and the moral vision which lies in CST do not provide detailed answers to questions. Nor do they give us clear guidance on how to achieve their implementation in the world of power politics and compromise. What the tradition offers us are principles and insights which can shine some light on the ethical integrity of proposals to address the problem of international debt. Confronted with the inability of realism or the dominance of the powerful to move us out of the darkness in which debt crises cover so many lives we look to the light of these principles as a guide towards solutions which could humanise the dynamics of global debt. 4. Principles for a Just Debt Mechanism

7 7 From this tradition we underline four interconnected principles which are of particular relevance in establishing a framework to assess mechanisms for resolving debt crises. At a more objective level they are (i) the universal destination of the goods of the earth and (ii) the limits of the market in achieving human ends. At a more subjective level - in the sense of identifying where responsibility for translating principles into practice lies - we point to (iii) the responsibility of governments to guide the economy towards the common good, and (iv) the right of people to participate in decisions which affect them in fundamental ways. i) The goods of the earth are intended for everybody Beginning on the more general level, it is important to make clear that Catholic teaching is not hostile to the creation and production of wealth. Economic growth, the expansion of trade, the investment of capital in far off places, the creativity, inventiveness and courage which underlie these phenomena: these can all be positive and valuable goods for humanity. However, wealth and its constituent parts are not values to be considered in isolation. For Christians the attractiveness and dynamism of wealth creation as instanced for example in the daily bustle and passion of world financial markets - means there will always be a need to remind ourselves that wealth is not the end of life; it is a means, a vital one, but only a means to a more human life, for ourselves, those we care for and the world community at large. Its production and distribution raise many questions about what it does to us, and the extent to which it is serving the purposes of humanising life on the planet. According to what John Paul II terms the characteristic principle of Christian social doctrine, we believe that the goods of the world which includes finance are originally meant for all. 13 The Catholic Church has and does defend the right to private property. From this it is possible to derive basic rights of creditors. However the rights of private property do not confer absolute rights. Those with resources - whether they are governments, IFIs or private investors - are morally obliged to keep in mind the fundamental social orientation of what they possess. As John Paul II puts it, private property is under a social mortgage, which means that it has an intrinsically social function. 14 This fundamental principle of the universal destination of the goods of the earth lies beneath all the strong statements of John Paul II on debt. While always recognising in principle the ethical obligation to repay debts, he qualifies this by stressing that in practice such repayment must never be demanded at the price of unbearable sacrifice. 15 This principle makes it very difficult to accept certain aspects of the SDRM. Overall the SDRM and CAC framework raise the rights of creditors to an ethically unjustifiable priority. According to the IMF, Any interference with contractual relations should be limited to those measures that are needed to resolve the most important collective action problems. 16 This indicates a fundamental problem with the SDRM and the CAC approach. Underlying both is a failure to recognise that a discourse which introduces ethically grounded notions such as rights cannot be developed in an abstract and unrealistic way, ignoring the rights of other affected parties. The great advantage of arbitration proposals is that they provide ways of dealing with competing rights claims without collapsing the possibilities into debt repudiation.

8 8 The principle of the universal destination of the goods of the earth has a wide range of implications when we come to think of the exclusion of so many millions of people from access to even the most basic necessities. In a world of extraordinary resources, one of the greatest challenge for those with control of huge financial resources resources which either give or take life - and the enormous power that goes with it, is to find a way of enabling those without to be able to access what they need to develop. Our faith challenges us not to rest with an accommodation to the effective writing off of the chances of decent human lives for any people. As Christians we believe that we are all created in the image and likeness of God. Such a belief compels us to evaluate our use of resources whether as states, citizens, or players in international financial institutions not by the restricted perspectives of national or shareholder interest. At the very minimum, the universal destination of the goods of the earth urges us all to work for mechanisms which can tilt global income distribution in favour of the most impoverished people. With this principle in mind, we ask which proposal is likely to move us more in the direction of ensuring a distribution of wealth that meets the needs of the poorest. 17 As currently presented the FTAP offers more on a number of grounds. The SDRM excludes the debt owed to IFIs. It is unclear what will happen to bilateral debt. It allows the IMF to continue to play a central role in determining what levels of debt can be paid. As experience has shown, as a creditor, the IMF will continue to have incentives to overestimate this. On the other hand the FTAP proposals, building on the, in principle, comprehensive approach of the HIPC initiative, stress that all debt - private, bilateral and multilateral - should be subject to the arbitration framework. Crucially, they also provide for an independent assessment of a country s capacity to pay, taking into account its financial requirements to progress towards the internationally approved millennium development goals. ii) The market is a limited mechanism to achieving human ends A second general position which has emerged more clearly in CST over the course of the past hundred years is to be very honest about the limits of the market as the mechanism controlling all of economic life. CST is profoundly realistic about the ability of unguided markets to achieve minimum social outcomes and also about the reality of the way in which power distorts the market. At its very foundations this led Leo XIII to argue that workers needed to be provided with a just wage, not just what employers would pay according to free contracts in the market. He also argued in favour of their right to organise in order to better what they would be given by the market on its own. Unregulated, where there are massive inequalities of power, the market will not naturally incline towards solutions which provide even a minimum acceptable standard of life for people. 18 This same basic insight remains central to CST in the later period from the 1960s on, when beginning with John XXIII, it began to more consciously focus on the global dimensions of economic organisation. When advocates of the market were proposing that international trade would provide the engine for growth, Paul VI in his 1967 encyclical Populorum progressio, once again pointed to the fundamental inequalities which underlay the appearance of fair trade. He highlighted the fact that in the real world the market was not fair, and that unless it was guided it would work to the

9 9 disadvantage of the poorer nations. 19 In assessing contracts which exist in the context of unequal market relations the words of Paul VI remain relevant: when two parties are in very unequal positions, their mutual consent alone does not guarantee a fair contract; the rule of free consent remains subservient to the demands of natural law. 20 Some people have seen John Paul II as shifting CST, particularly in his encyclical Centesimus annus, written after the collapse of the Berlin Wall, to a much more pro market position. Such a view seems hardly justifiable when we consider some of the critical things he has to say of the market. One of his most radical criticisms is that the market has no in built orientation to respond to real human needs unless they are backed by real purchasing power. In the light of this radical weakness of the market - and it is one the Pope thinks applies widely to the situation of the majority world - he makes clear that the market does not set the standard for human justice. But there are many human needs which find no place in the market. It is a strict duty of justice and truth not to allow fundamental human needs to remain unsatisfied, and not to allow those burdened by such needs to perish. 21 John Paul II is also very alert to the anonymous character of market functioning. In Sollicitudo rei socialis he writes: Moreover, one must denounce the existence of economic, financial and social mechanisms which, although they are manipulated by people, often function almost automatically thus accentuating the situation of wealth for some and poverty for the rest. 22 But behind this apparently uncontrolled logic of the market he points out. These mechanisms which are manoeuvred directly or indirectly by the more developed countries, by their very functioning favour the interests of people manipulating them. 23 Where economic exchange is left to the sole power of the market, it can appear that whatever happens is natural, and so immune to moral evaluation. Considered over time it is clear that CST contains a formidable criticism of the market and so a mandate to look for reforms which ensure that the market works for those people who will be disadvantaged or excluded by the market. When looking at key global financial transactions, Catholics cannot settle for relations that are determined only by or within the constraints of the market. As Catholics we are invited to explore critically how the market functions. There is a certain irony in the way the debate over the SDRM has evolved. To an unusual extent the IMF finds itself in the position of intervening to provide for a better regulation of the international financial markets. Its main focus has been on the need to create a statutory framework which will create incentives for a co-ordinated response from the increased diversity of creditors when a debt crisis looms. A good deal of the opposition from those representing private creditors is to resist this interference. In particular they object to anything which threatens creditor rights and the importance of contractual relationships. They contest the point that the market has proved inadequate, claiming that they have more or less found ways of dealing with the various financial crises of the last years. They also claim that the voluntary reforms they propose would provide an adequate solution. 24 This debate has been quite contentious but it is easy to lose sight of the fact that what is really at stake here is a very marginal step towards a little more regulation of the market. On a spectrum of market supporting to market questioning approaches, the SDRM is - despite the arguments - still much closer to the former. The trend of the

10 10 debate is not surprising given the dominant and largely unquestioned role of the creditors IMF and private - in shaping the policy debate. 25 One good illustration of how little scope for real change exists is the fairly timid position of debtor countries in even supporting the very modest SDRM proposal. While some suggest that this is proof that there is no need for any new mechanisms, an awareness of the enormous power of creditors in an unguided international market throws serious doubt on the meaningfulness of this support. Within the present global financial system these governments are in an extremely weak position to make proposals which could disturb their creditors. From an economic point of view this may be being realistic; from an ethical point of view it is hard to see it as anything other than being bullied. Against this the FTAP by providing for a system of independent arbitration, offers a way of ensuring that the market is not left to its own patterns and logic. Both the CACs and SDRM largely see the problem as a question of co-ordination. They differ as to what kinds of incentives are needed to achieve better co-ordination. The FTAP is based on a more honest and comprehensive view of the limits of the market. It looks to achieve an outcome which goes beyond co-ordination to a situation where the vital interests of those affected by the market are explicitly attended to. Such an orientation is clearly consistent with a Catholic understanding which obliges us to prioritise what people, not markets, can bear. Again the market cannot on its own cope with the question of the legitimacy of debts. It treats legitimate and illegitimate debts in the same way. The FTAP seems to offer some space for actually investigating which debts ought to be paid, and which not because they are odious. Given the scale of odious debt, the willingness to provide some way of looking at this question is a key test of the ethical integrity of debt mechanisms. To argue that even raising such questions will scare the market, and so should be avoided, seems to betray a startling inconsistency in approach. Establishing a way of distinguishing more genuine loans from money lent to dictators is actually critical to establishing a case that creditor rights should be respected. If there is no distinction, then voices calling for a general repudiation of debts might seem to have a more forceful case. iii) Government has a crucial role to play in guiding economic life Given the inability of the market to achieve certain ends such as allowing people or nations to enter so as to participate or safeguarding the interests of the more vulnerable - CST has always been very clear that the state has an important role to play in ensuring that the economy runs for the benefit of society. It is important to understand that this is not based on a kind of generalised moralistic criticism of those who operate within the market. The Catholic position develops at a more structural level. It is based on the observation that the market will not alone achieve the ends that the Church considers as minimally desirable for society. John Paul II argues that the state has the task of determining the juridical framework within which economic affairs are to be conducted. 26 It is interesting to note that he in fact makes the case that the market itself requires this. For the duty of determining the juridical framework includes safeguarding the prerequisites of a free economy, which presumes a certain equality between the parties, such that one party would not be so powerful as practically to reduce the other to subservience. 27 This is an important point in that it shows that Catholics stress the need for social control of the market not

11 11 just in terms of its tendency to distribute income unfairly, but also to actually enable people to engage with the market. Historically this view of the role of the state was largely thought of within the confines of the traditional nation state. However, as far back as 1963, in the encyclical Pacem in terris, John XXIII made the point that the increasing internationalisation of economic affairs made it necessary that there would be some form of global authority capable of guiding markets for the good of the world community. The felt need for such a global authority is closely connected to a government s legitimacy residing in its ruling for the good of its society, and in its balancing various conflicts to achieve this end. As long as we do not have an effective global authority it remains clear that such a vacuum places a particular obligation on governments to work for outcomes which situate conflicting interests within the framework of a coherent vision of the common good. And within the Catholic tradition a fundamental dimension of concern for the common good is to pay particular attention to the needs of the most vulnerable. As the Catholic Church tries to apply its thinking to the relatively new context of a market dominated global economy John Paul II places great stress on the fact that it is the universal common good which demands that control mechanisms should accompany the inherent logic of the market. And he highlights that this is essential to avoid reducing all social relations to economic factors, and in order to protect those caught in new forms of exclusion or marginalization. 28 To some extent, it could in theory be hoped that the IMF might be able to play a useful interim role in providing some sort of control of the market with a view to the common good. In relation to the SDRM one of the key areas of discussion has been in relation to the precise role the IMF should have. The discussions over the past year have led to some modification of what role the IMF may play. On the whole the IMF has reduced its centrality, largely to meet the concerns of private creditors. However, despite this, it is difficult to see how the IMF in principle can match up to the tasks of providing a form of governing for the common good. Again it is important to say that this is true no matter how progressive, well intentioned or professional its board, management or staff are. In detailed discussions about new debt mechanisms it is important never to forget the fact that objectively the IMF is not a neutral institution. 29 The IMF does have very broad international membership, but its voting system is fundamentally biased in favour of the creditors and the IMF itself is also a creditor with its own particular institutional interests. The US alone has sufficient voting strength to veto key changes. Much is made of the fact that generally decisions at board level are reached by consensus. But the meaningfulness of this type of consensus, where alternative voices can so easily be quashed, is obviously highly questionable. Once we accept the limits of what the IMF can do to play a key role in facilitating just solutions between debtors and creditors then we are faced with the lack of a global authority to do this. Without doubt this is a crucial problem. To many it can appear that working along with the IMF is the only realistic option. However, given the history of the kind of solutions that can emerge from this approach, we would argue that the international community needs to be more honest in acknowledging and tackling this problem. The great advantage of the FTAP proposals is that they give governments feasible opportunities to set up more legitimate ways of dealing with

12 12 debt crises without the need for presently inconceivable progress on the establishment of institutions of global governance. For this reason we think it is important to appeal to governments to face up to their responsibilities to establish some sort of independent mechanism to deal with the market failure which blocks just or effective solutions to debt crises. Rich country governments make very strong demands of poorer nations in terms of how they should manage their economic development. In general the commitment of these same governments to fulfilling their own promises to support such progress proves more disappointing. Steps in the direction of a FTAP would be a powerful indicator of a genuine commitment by governments to addressing the obstacles global power imbalances place to development. It is in addition possible to offer various reasons why it would make sense for governments to work together to set up such a framework. From the perspective of international co-operation, in doing so they would be responding to the spirit of the Charter of the United Nations. This requires member nations to co-operate for the economic development of all peoples. Setting up a FTAP would also be a step towards ending an unjustifiable discrimination on a matter of basic human rights against other peoples and nations. How else can we assess the failure of governments who have it in their power to work towards this, and who have forms of bankruptcy systems to address such problems in all of their own societies? Can we not imagine that a breakthrough in terms of setting up a just - and so effective system - for dealing with debt crises would in time make it easier for new and more stable lending to occur and so to promote a globalisation which fosters development? The impersonal market does not have the ability to mourn this enormous lost human potential. Governments, responding to internalised ethical principles, can and ought to assist to provide mechanisms so that these countries can develop. Without steps that make development a more real possibility, the world s richer countries will continue to be faced with all the problems of global poverty migration, threats of violence, lack of markets. iv) People have a right to participate in decisions which shape their lives. CST places a strong emphasis on the duties of government to work for the international common good. It is equally important to realise that the range of responsibility does not end there. All those with relevant power are asked to face the wider implications of the policies for which they lobby. This means that private creditors and the associations that represent them are invited to look beyond the narrow framework of exclusively pursuing their own interests to take into account other stakeholders. The stress placed on the role and need for government authority though does indicate that some basic human concerns are considered to be so vital that they cannot be left to be determined by the potentially anti developmental lottery of competition amongst different players. At the same time it is also worth pointing out that a realistic and even sympathetic understanding of the fiercely competitive pressures which shape the options of private creditors reaffirms the point that government power and co-operation is required to produce more humane outcomes. However, it is also worth recalling that CST does not understand development as a passive process. To some extent CST does recognise the primary responsibility of individuals and nations to do what they can to achieve their own development. This is a complex area. It is all too easy for the international community to ignore the real

13 13 ways in which it has caused underdevelopment, and continues to shape an international environment where the achievement of development is rendered almost impossible. Mr Kohler s criticisms of rich countries protectionist policies point to the force and scandal of this external constraint. One key means to achieving some balance between the responsibilities of poor and rich nations is to take concrete steps to allow poorer nations to at least participate in the decisions which affect them. Over the course of the last thirty years CST has come to recognise and validate more strongly the aspiration people have to participate in decisions which shape their possibilities of development. In his 1971 Apostolic Letter, Octogesima adveniens, Paul VI affirms that this desire is something that flows from their very dignity as persons. 30 In the same year the Synod of Bishops in their document on Justice in the World, also pointed to the same need to link economic growth with processes of participation. On the other hand, it is impossible to conceive true progress without recognising the necessity--within the political system chosen--of a development composed both of economic growth and participation; and the necessity too of an increase in wealth implying as well social progress by the entire community as it overcomes regional imbalance and islands of prosperity. Participation constitutes a right which is to be applied both in the economic and in the social and political field. 31 John Paul II states that the Church values the democratic system inasmuch as it ensures the participation of citizens in making political choices, guarantees to the governed the possibility both of electing and holding accountable those who govern them, and of replacing them through peaceful means when appropriate. 32 Some of the changes in the atmosphere surrounding development discussion in recent years would suggest that recognising this right should not be a problem. In the light of the Comprehensive Development Framework, and also of the PRSP approach, new emphasis is placed on the importance of people owning their national plans for development. We seem to have reached a quite universal consensus where nobody really believes that development can be imposed from outside against the will of the people. However the level of ownership which is aspired to continues to be perversely undermined by the radical limits which are placed on people s rights to participation. The right to participation in discussions relating to matters affecting their economic development is limited to internal fora only. This is an illogical position as it is clear that people need to be able to participate in some way at the fora which play the most important role in shaping their economic fortunes. The right of people and not just governments - in poorer nations to participate in key discussions about their economic restructuring plans is completely neglected in the proposals of the IMF and the private sector. On the other hand the right to participate is one of the key attractive features of the FTAP proposals, with intellectual roots in US Chapter 9 bankruptcy procedures as shown by Kunibert Raffer. Such a right does not of course mean that citizens of debtor countries determine the solutions. What it does do is affirm their dignity by allowing various representatives of civil society parliamentarians, unions, NGOs - make their case before a neutral body charged with achieving a just settlement of the conflict between debtors and creditors. It is

14 14 completely right that private creditors have been able to make their case forcefully in the debate about setting up an SDRM. The possible new debt mechanism which may emerge is strengthened by their sharp critique of the potential inequitable sharing of the burden between private and official creditors. Unless there is some way of formally checking restructuring proposals with civil society, the danger is that the SDRM will be unjust in a different sense, being seen as an alliance between creditors and governments which fails to attend sufficiently to the interests of the poor. In this sense the establishment of an FTAP could also play a strong role in enhancing the democratic legitimacy of global financial arrangements. The existence of a FTAP would make it much more difficult to argue that proposed debt solutions are the product of cosy negotiations between international creditors and local elites. Conclusion: o Ethical Globalisation without Ethical Debt Mechanisms With Christians all around the world we have joined with many others in the campaigns to achieve resolutions to the problems of debt. It remains clear that the failure to find a way of solving debt crises is one of the major obstacles to development to which millions of people are entitled. More than six years later we remain deeply disappointed by what little real good news for the world s poor has been delivered in terms of debt relief through the HIPC initiative. The devastating problems faced by middle income countries such as Argentina over the past couple of years also make painfully clear the need for new ideas and approaches. We welcome the IMF s willingness to debate the ethical foundations of its work. We also welcome the IMF s efforts to promote an open discussion around a new framework for tackling the debt problem. Together these developments present the international community with a crucial opportunity. Yet we are convinced that neither the reforms being proposed in terms of CACs, nor the IMF s SDRM offer real grounds for hope that this period of discussion will bear fruit in changes sufficient to the tasks of humanising globalisation. There are many reasons for this. As well as economic and political constraints, one of the deepest is that neither of these proposals can really claim to be guided by fundamental ethical principles common to all civilisations, the kind of principles put forward by the Managing Director of the IMF. At its roots the SDRM makes very little real progress in the direction of addressing fundamental power imbalances in order to establish real relationships of trust between nations. It seems to us to be highly questionable that any of the proponents of CACs or SDRM could really claim that these proposals emerge out of a process where countries can trust that their voices will be heard and their interests recognised. Nor can we see that they provide any solid grounds for hoping that these models can provide robust respect for human rights. If these main proposals currently being considered do not meet such minimal ethical requirements, we believe that the international community must continue in the search for models which can. To make no attempt to stretch the limits of what we at present consider practical is to side too easily with a globalisation which today is profoundly unethical. It is unworthy of our human creativity and ability to make generous and courageous decisions to reverse the patterns of global marginalization. Of the ideas being proposed we consider that the FTAP does offer a way forward which is more in line with fundamental ethical visions. The FTAP does offer the international

15 15 community a way of meeting three essential demands: the provision of independence which can correct the imbalance of power; the guaranteed protection of basic human rights; and with these a means to begin to integrate poorer nations into the search for ethical globalisation. More importantly for the wider world, the FTAP points the international community in the direction of an honest attempt to turn ethical principles recognised within most civilised societies into reality.

16 16 SELECTED REFERE CES AFRODAD, The Efficacy of Establishing an International Arbitration Court for Debt, Technical Paper 1, AFRODAD, Fair and Transparent Arbitration on Debt, Issues Paper No 1/ CIDSE AND CARITAS INTERNATIONALIS, The Case for an International Fair and Transparent Arbitration Process, January DOMMEN, E. (ed.), Debt Beyond Contract, in Finance and the Common Good, Supplement No 2, May FRITZ, T.& P. HERSEL, Fair and Transparent Arbitration Processes A ew Road to Resolve Debt Crises. Paper prepared for BLUE21 and Misereor, August GREENHILL, R., The Unbreakable link Debt Relief and the Millennium Development Goals, A Report from Jubilee Research at the New Economics Foundation, February HALDANE, A. & M. KRUGER, The Resolution of International Financial Crises: Private Finance and Public Funds, Working Paper , Bank of Canada with Bank of England, November HUBBARD, R. G., Enhancing Sovereign Debt Restructuring, Remarks of the Chairman, Council of Economic Advisers, Conference on the IMF s Sovereign Debt Restructuring Mechanism, January 22 nd, IMF, The Design of the Sovereign Debt Restructuring Mechanism Further Considerations, International Monetary Fund Legal and Policy Development paper (in consultation with the International Capital Markets and Research Departments). November 27 th, IMF, Transcript of an Economic Forum Panel Discussion at the IMF's Sovereign Debt Restructuring Mechanism (SDRM) Conference. Washington DC, January 22 nd, INSTITUTE OF INTERNATIONAL FINANCE and others, Sovereign Debt Restructuring. Discussion Paper of Seven Leading Financial Industry Associations, June JDRAD, The Case for an International Insolvency Court [IIC], September

17 17 JOHN XXIII, Pacem in terris, Encyclical Letter, JOHN PAUL II, Centesimus annus, Encyclical Letter, JOHN PAUL II, Sollicitudo rei socialis, Encyclical Letter, JOHN PAUL II, Address to the Participants of Seventh Plenary Session of the Pontifical Academy of Social Sciences, April 2001, no.2 KAISER, J., Little Common Ground Left: The SDRM Draft-proposal From an FTAP perspective, January 21 st, ft3.rtf KAISER, J., Erlassjahr.de Position paper on the concept of a Fair and Transparent Arbitration Process (FTAP) July, glish.rtf KÖHLER, H., World Religions-Universal Peace-Global Ethics, Welcoming Address at Exhibition Opening, September 19 th, KÖHLER,H., Working for a Better Globalisation, Remarks at a Conference on Humanising the Global Economy, Washington, DC, January 28 th KRUEGER A., International Financial Architecture for 2002: A ew Approach to Sovereign Debt Restructuring, Address at the National Economists' Club Annual Members' Dinner, American Enterprise Institute, Washington DC, November 26 th, KRUEGER A., Sovereign Debt Restructuring and Dispute Resolution, Address to Bretton Woods Committee Annual Meeting, Washington DC, June 6 th, KRUEGER A., Sovereign Debt Restructuring: Messy or Messier?, Address to Annual Meeting of the American Economic Association, Washington, January 4 th, MILLER, M., Sovereign Debt Restructuring: ew Articles, ew Contracts or o Change? International Economics Policy Briefs, Institute for International Economics, April PAUL VI, Populorum progressio, Encyclical Letter, 1967.

18 18 PAUL VI, Octogesima adveniens, Apostolic Letter, PETTIFOR, A., Chapter 9/11? Resolving International Debt Crises The Jubilee Framework for International Insolvency, An NEF Report, January PETTIFOR A., L. CISNEROS & A. OLMOS GAONA, It Takes Two to Tango: Creditor Coresponsibility for Argentina s Crisis and the eed for Independent Resolution, A Jubilee Plus report, September RAFFER, K., What s Good for the United States Must be Good for the World. Advocating an International Chapter 9 Insolvency in, Bruno Kreisky Forum for International Development(ed.), From Cancún to Vienna: International Development in a ew World Vienna, RAFFER, K., Sovereign Debt Workout Arrangements, Conference of the Coalition New Rules for Global Finance, May 23-24, RAFFER, K., Debt Relief for Low Income Countries: Arbitration as the Alternative to Present Unsuccessful Debt Strategies. August ROGOFF, K. & J ZETTELMEYER, Early Ideas on Sovereign Bankruptcy Reorganisation: A Survey, IMF Working Paper 02/57, March ROUND, R., Finding Real Solutions to Unsustainable Debt. A Comparative Analysis of the IMF s Sovereing Debt Restructuring Mechanism and the Fair and Transparent Arbitration Process, Halifax Initiative Discussion Paper, March TAYLOR, J. B., Sovereign Debt Restructuring: A US Perspective, April 2 nd SYNOD OF BISHOPS, Justice in the World, 1971.

19 19 1 H. KÖHLER, World Religions-Universal Peace-Global Ethics, Welcoming Address at Exhibition Opening, September 19 th, H. KÖHLER, Working for a Better Globalisation. Remarks at a Conference on Humanising the Global Economy, Washington, DC, January 28 th 2002, no ibid. no See INSTITUTE OF INTERNATIONAL FINANCE and others, Sovereign Debt Restructuring. Discussion Paper of Seven Leading Financial Industry Associations, June See, IMF, The Design of the Sovereign Debt Restructuring Mechanism Further Considerations, November 27 th, IJND has supported these kinds of proposals previously. See The Case for an International Insolvency Court [IIC], September 1999, For a presentation of Raffer s proposal and outline of how it differs from the SDRM see K, RAFFER, Sovereign Debt Workout Arrangements, Conference of the Coalition New Rules for Global Finance, May 23-24, Many other similar and detailed proposals and commentaries have been put forward by groups such as Afrodad, Erlasjahr.de, Jubilee Plus, Blue21 and Misereor, CIDSE and the Halifax initiative. References in bibliography. In broad terms we support the perspectives developed in these papers. What we hope to add in this paper is a reflection from a Christian ethical perspective which we believe complements such work. 7 In offering an outline of what perspective Catholic thinking can give on this issue, it is clear that there are valuable ethical approaches to the issues raised by SDRM both among other religions and more secular instances. The insights which different traditions can bring to bear on such issues can be mutually reinforcing. But the Catholic tradition does claim to offer an ethical viewpoint that can appeal to the moral sensitivity of all people. 8 In part it responds to the perception that policy makers may not have fully perceived the underlying ethical foundations which ground such support. For example, JACK BOORMAN, Special Advisor to Managing Director IMF, has stated: In terms of the opposition of the NGOs, I confess absolute surprise at the position of the NGOs. I thought if there was ever an initiative that the IMF came up with that the NGOs could buy into, it was this one. Comments made at the Panel discussion at the IMF's Sovereign Debt Restructuring Mechanism (SDRM) Conference. Transcript of an IMF Economic Forum Washington DC, January 22, JOHN PAUL II, Sollicitudo rei socialis, 1987, We disagree with the view of leading private sector financial institutions who have made plain their refusal to accept any helpful analogy between the SDRM and private sector bankruptcy legislation. The analogy between an SDRM and private sector bankruptcy legislation is fundamentally flawed: private companies are subject to the jurisdiction of the bankruptcy tribunal. Even under an SDRM, the sovereign debtor would inherently not be subject to the appropriate checks and balances that legitimise and make a bankruptcy regime fair and effective.iif, Sovereign Debt Restructuring. Discussion Paper. June ii. No one claims the situation with regard to sovereigns is identical to that of private corporations or even municipalities. We believe there are sufficient similarities to require us to search to apply the core principles also in the case of sovereign bankruptcy. 11 While there has been some welcome effort to think through the need for independence in relation to the Sovereign Debt Dispute Resolution Forum, [SDDRF] the value of this independence is compromised by the weak role such a forum will play in the SDRM. 12 In this paper for the sake of brevity - we limit our analysis to the principles of CST as reflected in some of the major papal documents of official CST. 13 See Sollicitudo rei socialis ibid. 15 See JOHN PAUL II, Centesimus annus,1991, IMF, The Design of the Sovereign Debt Restructuring Mechanism Further Considerations, no In advocating for an FTAP, we do not of course deny that many other actions on trade, aid, and other measures aimed at the reform of international capital flows are also required to achieve this redistribution. 18 LEO XIII, Rerum novarum,1891, 34

20 20 19 See PAUL VI, Populorum progressio, 1967, Populorum progressio, Centesimus annus, Sollicitudo rei socialis, ibid. 24 See for example IIF., Sovereign Debt Restructuring. In this paper leading financial industry association make clear the strength of their opposition to the SDRM. Common ground can be found with these groups in relation to their objections to preferential treatment of IMF and bilateral debt. However, it is clear that an approach inspired by CST will take issue with these associations opening premises. The premise of this paper is that market-based solutions are the only viable means of addressing international financial crises. No See A. KRUEGER In discussions of the SDRM proposal, some have argued that the existence of such a framework would alter, and presumably weaken, creditor rights. In fact, the design of the proposal has been structured in an effort to increase creditor value for reasons already discussed, by aggregating rights now held by individual creditors. Sovereign Debt Restructuring: Messy or Messier?, Address to Annual Meeting of the American Economic Association, Washington, January 4 th, Centesimus annus, ibid. 28 JOHN PAUL II, Address to Pontifical Academy on Social Sciences, April, Present discussions aimed at improving the democratic legitimacy of the IMF are to be welcomed. However, the urgency of finding solutions to debt crises requires that progress on this is not tied to what will most likely be a slow process. 30 PAUL VI, Octogesima adveniens, 1971, SYNOD OF BISHOPS, Justice in the World, 1971, Centesimus annus, 46