Feedback from the UN High level meeting last monday
We hope this is helpful.
Around 26 world leaders and representatives of international institutions participated in the High level meeting convened by the United Nations Secretary-General António Guterres, together with the Prime Minister of Canada, Justin Trudeau, and the Prime Minister of Jamaica, Andrew Holness, to discuss the international debt architecture and liquidity as part of the Financing for Development in the Era of COVID-19 and Beyond Initiative (FfDI).
The event was presented as an opportunity to advance towards the international financial architecture reform. However, there was very little discussion on debt architecture. It turned out yet another missed opportunity.
There’s a broad consensus that the situation is grave, the measures adopted insufficient and that further action is urgently needed, but very few of the heads of state, country representatives, and international institutions representatives participating, shared relevant and ambitious proposals, particularly in relation to the main issue of the debate “debt architecture”.
Some supports for debt workout mechanism
Some heads of state participating, notably from the global south, pointed out to the need for a reform of the global financial architecture:
- Prime Minister of Jamaica, Andrey Holness, called for an opening discussion on "Sovereign debt architecture mechanism" → ”Another issue we should address is the need to establish a sovereign debt architecture mechanism that provides a framework for orderly and effective debt restructuring. The effort to reform the international debt architecture will require that we adopt a systemic approach, one that aligns with the SDGs and the Paris Agreement.’
- President of Argentina, Alberto Fernandez, supported this call: “It is essential to explore a new multilateral framework for the restructuring and relief of public debt at the global level under criteria of fairness and sustainability for debtors and creditors”.
- In her closing remarks, the UN Deputy Secretary General ensured that the UN will take forward the debate on debt architecture.
Most interventions and proposals were focused on improving the existing mechanisms (DSSI and Common Framework) and, notably, on the possibility of an issuance of SDRs by the IMF.
There seems to be general support on the issuance of SDRs and the “reallocation” of unused SDRs from developed countries to developing countries - a variety of proposals were shared on how, notably by Barbados or Spain (on-lend unused SDRs).
Kristalina Georgieva, IMF Managing Director, confirmed that the SDR issuance will be on the board of governors table in June, including measures to enhance transparency and accountability. She also confirmed that the IMF is looking at the options of on-lending unused SDRs.
There was also insistence, mainly from developing countries representatives, on the need for boosting new financing for the global south. Costa Rica’s president, for instance, presented a proposal for a new financing facility, the Fund to Alleviate COVID-19 Economics (FACE).
There seems to be broad support as well on the need to extend DSSI to the end of 2021 for some, throughout 2022 for many and Ms. Ngozi Okonjo-Iweala, WTO Director-General, even called for an extension till mid 2023.
There were also many voices calling for an expansion of DSSI and the Common Framework for Debt Treatment to highly indebted middle income countries. Also on the need to swiftly implement the common framework, ensuring private creditor participation - as the world bank president stated in the meeting “Regarding private sector participation, the DSSI example shows that voluntary participation by commercial creditors in debt relief initiatives does not work. We need to find ways in which both Paris Club and non Paris Club member countries can encourage more participation in debt relief for low income countries by private creditors within their jurisdictions”.
The expansion of the Common Framework to middle income countries facing debt distress was even supported by Ursula von der Leyen, “The scope of the Common Framework could be extended beyond lower income countries to help restructure unsustainable debt for middle income countries too.”
As newly appointed Director-General of the WTO, Ngozi Okonjo-Iweala, stated, reminding of the joint action taken to implement HIPC and MDRI a couple of decades ago, “It is time to act again, lost decades are a policy choice"
As we stated in the CSO reaction, for now, leaders are choosing not to rise and responding way below the level of ambition that the situation requires.
As the Jamaica permanent representative at the UN shared in his closing remarks: “We must tackle the reform of the international debt architecture to ensure a recovery that brings more sustainable stronger resilient recovery”. But again, the policy choice by the world leaders, and most notably by the leaders of the rich countries, is to ignore the need for a much more ambitious response that tackles, not only short term liquidity needs, but long-term structural reforms, including advancing towards the establishment of a sovereign debt restructuring mechanism.