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Summary and recommendations, very much aligned with our CSOs proposals.

In order to respond to the unfolding debt crisis, it is imperative that any reforms prioritize social justice, equity and human rights and address structural issues, so as to prevent a vicious circle. The Independent Expert sets a two-fold objective for this reform: first, the debt architecture should have the capacity to respond to debt crises in an effective and timely manner; and second, it should most importantly serve to prevent future crises. Upholding human rights should be an ultimate drive for the reform.

(a) Prioritize human rights obligations. Indebted countries must prioritize their human rights obligations and guarantee the well -being and dignity of their populations over creditors’ conditionalities. A human rights impact analysis should serve to ascertain those debts that can be repaid, how deep debt relief should be and the resources necessary to ensure compliance with the obligation of using the maximum available resources for the protection and fulfilment of human rights. The guiding principles of f oreign debt and human rights and the guiding principles on human rights impact assessments of economic reforms can be more systematically operationalized;

(b) Put in place, across all creditors, an immediate debt standstill for those countries hit hard by the pandemic and with serious debt problems, to prevent the diversion of needed funds to debt servicing. Debt standstill should cover all those countries hit the hardest and facing risks of debt distress or in debt distress. The objective is not to allow debt servicing to mop up the limited financial resources of crisis-stricken countries by placing a heavy burden on them and leaving them with no money to fight the crisis. To be effective, this will need immediate national statutory legislation in order to prevent litigation against countries;

(c) Ensure large-scale liquidity provision for debt-free, condition-free financing. The reallocation of special drawing rights must not be counted as ODA. Adequate increases in the funding of concessional facilities, increases in ODA and a sustained positive net resource transfer are also necessary. A standing mechanism to re-channel unused special drawing rights is necessary; this should not be based on GDP per capita but instead on countries’ urgency of need for liquidity. Furthermore, it should not be housed entirely in IMF;

(d) Create a multilateral debt workout mechanism. A legitimate, independent and fair mechanism, with the least costs to debtor countries, is needed urgently. This must be agreed upon, designed and implemented with the United Nations playing a leading role and should ensure that all Member States have the opportunity to participate. It should function with a clear set of principles and norms, including a human rights-based approach and built upon existing guiding principles. Current mechanisms for debt resolution do not share common approval or legitimacy since they do not represent the debtors’
perspective. Debt restructuring is complex, time consuming and costly and, in times of crisis, the lack of an available mechanism often leads to a panicked search for a solution. The pandemic has made it imperative that we not wait for another crisis to renew efforts to have such a multilateral mechanism;

(e) Use and implement existing common principles. Sovereign lending and borrowing and the resolving of debt repayment difficulties need to follow commonly agreed principles. The Basic Principles on Sovereign Debt Restructuring Processes and the Principles on Promoting Responsible Sovereign Lending and Borrowing provide the more widely accepted set of guiding principles. As indicated in the Basic Principles, countries have the right to restructure debts. Legal tools are available, such as relying on the state of necessity, a fundamental change in circumstances and force majeure. Further contractual improvements can continue, such as state -contingent instruments and repayment linked to the state of a country’s recovery;

(f) Ensure debt cancellation. Debt cancellation to alleviate debt burdens is needed, based on human rights-related and Sustainable Development Goals related debt sustainability assessments. World Bank and IMF debt sustainability assessments must be reformed further to incorporate debt repayment prospects focused on human rights and meeting longer-term development goals. As experienced already with heavily indebted poor countries, cancellation is not enough – structural change is required to remove persistent global inequalities between countries and prevent the build-up of debts;

(g) Reform credit rating agencies. States must reduce the mechanistic reliance on credit-rating agency assessments. Credit rating agencies should improve the quality of ratings and accountability. Measures and regulations should be introduced to avoid conflicts of interest in the provision of credit ratings. The lack of competition perpetuates wrongful behaviour and removes the incentive to improve the quality of credit ratings. The removal of the oligopoly of the “big three” credit rating agencies could be made possible by encouraging new players to enter the market, including publicly owned credit rating agencies;