Nairobi trade negotiators fight over debt management text

Sovereign debt management took centre-stage as the fourteenth session of the Nairobi UNCTAD conference entered its third day, pitting the developed world against their developing counterparts over the wording of the proposed text on the subject.

Sources said the disagreement particularly arose from the European Union’s quest to block the developing world-backed text outlining the principles of sovereign debt treatment – and which referred to debt restructuring as opposed to the EU debt management.

Debt restructuring, which is being pushed by the Group of 77, a group of 134 developing countries, seeks the passing of a new legal regime for sovereign debt management.

The quest is to have a single legally-binding process through which to negotiate all sovereign debt similar to the insolvency law used by corporations.

Negotiators said such a law is particularly important at this point in time when many developing nations have increased their uptake of bilateral and private debt.

Bodo Ellmers, the European Network on Debt and Development Policy and Advocacy manager, said the text as proposed by developing countries sought to protect them from hedge funds – better known as vulture funds -- which buy bad debts and end up suing defaulters leading to unfair outcomes and prolonging those countries’ periods under debt.

“Some countries end up paying billions of dollars and as it is they have legally enforceable rights to pay without looking at the impact of their actions on human rights issues such as starvation or pensions,” Mr Ellmers said.

The hedge funds that have been lending tonnes of money to the developing world are mostly domiciled in Europe and North America, making the wording of the text critical to the host nations.

It is estimated that about 80 per cent of the private debt held by the developing world are issued in New York and London stock exchanges.

“Debt restructuring has no contentions as it involves things like technical support by the United Nations Conference on Trade and Development (UNCTAD) who can advise on how to handle debt portfolios like getting cheap loans at the right maturities,” said Mr Ellmers.

The EU, US and Australia were part of the six that voted against the draft resolution on “Basic Principles on Sovereign Debt Restructuring Processes” adopted by the UN in New York at its Sixty-Ninth Session on 10 September, 2015.

Some 136 member states voted for the resolution while 41 abstained.

Argentina initiated the draft in the wake of the vulture funds (hedge funds) lawsuit against the country. Puerto Rico has since faced a similar problem with the casino capitalists.

READ: How poor nations lose billions to big firms through misinvoicing

UNCTAD Secretary- General Mukhisa Kituyi had earlier expressed hope that the Developed North and Developing South would agree on a debt restructuring framework, especially after the recent commodity bust threatened to send many developing nations into default.

“We have been engaging them to follow up on the first resolutions that were made at the General Assembly in September 2014 and we hope we can revisit the matter in a constructive way here in Nairobi,” Dr Kituyi said, adding that the goal is to have an agreed text ready for announcement by the close of the conference on Friday. 

Foreign Affairs and International Trade secretary Amina Mohamed told the media that the contentious issues were being worked on and refused to give details of the issues at the centre of the disagreement.

“As you know it is not a best practice to talk about the contentious issues but you should know that as we speak, some of the issues are being resolved. I think there is a very healthy debate and negotiations going on,” she said.

Director of Economic Affairs and International Trade at the Ministry of Foreign Affairs Nelson Ndirangu, however revealed that eight issues had been flagged although some were already resolved.

“They came to the table with eight issues some of which have been discussed and resolved,” he said. The Business Daily has, however, learnt that equal say in setting tax policies has also become a thorny issue as presented in the text.

Some countries are also uncomfortable with gender clauses, which they say are stretching the mandate of UNCTAD beyond the limits given the limited resources in its hands.

The developing world is also opposed to the proposed strengthening of the UNCTAD mandate to turn it into a decision making organ of the UN preferring instead to stick with the current mandate as a technical assistance institution.

Dr Kituyi had earlier on indicated that it would also be difficult to convince the developed world to pay the ‘commitment debt’ although there was no indication that it had become a thorny issue.

UNCTAD on Monday released a report indicating that the developing world would be $2 trillion richer had the developed world kept the promise they made in Mexico in 2002 to put 0.7 per cent of their gross national income into oversees aid.

“The 0.7 per cent will be a hard sell for many rich countries but these are the daring ambitious set of goals we have set for ourselves and which require an equally ambitious response,” Dr Kituyi said.

Ms Mohamed expressed hope that an agreed text could be ready by close of business on Wednesday ready for presentation during the final session on Friday.

Civil Society groups are also calling for definite clauses on ‘irresponsible’ lending, which they want classified as ‘illegitimate debt’.

“Irresponsible borrowing and lending and debt related to corruption or advanced for geostrategic influence should be classified as illegitimate debt under the set of UNCTAD principles,” Mr Ellmers said.

The demand came in the wake of revelations that the Mozambican government of Armando Guebuza took on more than $2 billion debt in secret that was responsible for the economic crisis that hit the country this year.

The IMF, which several countries have now turned to for relief, issued a general warning in its Africa ‘Regional Economic Outlook’ that African countries will need to cut their budget deficits to get support.