Alliance for Responsible Trade

Background

The international financial system must be reformed. We cannot go on lurching from crisis to crisis with ever larger bailouts that benefit the rich at the expense of the poor.

Trade and finance are closely interrelated. Countries often borrow abroad to finance their trade deficits, leading to higher external debts. Moreover, structural adjustment conditions attached to loans from the International Monetary Fund and the World Bank often compel governments to adopt trade and investment liberalization policies and economic strategies that favor the export sector, and to abandon efforts to strengthen the domestic market.

The foreign debt burden must be lifted, as it continues to cause a perverse transfer of wealth from impoverished peoples to their creditors. As the Buenos Aires Declaration of the Latin American and Caribbean Jubilee movement states "Resolving the foreign debt problem entails seeking historic reparations that countries of the North owe to the peoples of the South as a consequence of the looting and devastation that they have carried out over 500 years."

Between 1980 and 1999, underdeveloped countries paid US$1.9 trillion more in debt service than they received in new loans. In 1999, Latin America and Caribbean countries had a total foreign debt burden of US$792 billion, three times as high as in 1982 despite having made US$1.1 trillion in debt payments between 1982 and 1999.

As the Tegucigalpa Declaration launching the Latin American and Caribbean Jubilee 2000 Platform proclaims "The debt is illegitimate because, in large measure, it was contracted by dictatorships, governments not elected by the people, as well as by governments which were formally democratic, but corrupt. Most of the money was not used to benefit the people who are now being required to pay it back. The debt is also illegitimate because it swelled as a result of interest rates and negotiating conditions imposed by creditor governments and banks."

These debt payments and the structural adjustment conditions imposed by creditors exacerbate inequalities among nations and distort or obstruct development. Structural Adjustment Programs (SAPs) involve a high degree of intervention into sovereign states as they are imposed without opportunities for participation or evaluation by civil society. Moreover, the austerity imposed by SAPs falls disproportionately on the poor, especially women, who have increased their hours of work at home and outside the home to compensate for the loss of public services. Studies show women bear most of the burden of unemployment and underemployment, as well as the extra burden of caring for elderly and infirm family members. SAPs often involve the inappropriate privatization of enterprises and services that should remain in the public realm. Furthermore, they also tend to undermine the ability of governments to regulate the flow of money and of goods in a manner that serves peoples' needs and ecological sustainability.

The rise in financial speculation at the expense of investment in production threatens the well-being of working people everywhere, North and South. And yet in many arenas, governments have promoted, or have been compelled to promote, measures designed to allow investors to take any kind of capital in or out of member countries in any amount at any time. At the international level, these measures are intended to legalize and lock in the financial liberalization conditions attached to the SAPs. These efforts have included the failed Multilateral Agreement on Investment (MAI) and proposals for changing the Articles of Agreement of the International Monetary Fund to give it jurisdiction over capital account liberalization. The most advanced case to date, which is law in the North American region, is NAFTA's investment chapter. All of these measures serve to impede national controls over financial capital. Despite the criticisms and negative results (as demonstrated in the successive crises in Mexico, Asia, Brazil and now Argentina) of this total liberalization of capital flows, the draft FTAA chapter on investment goes even beyond NAFTA in obstructing governments' ability to utilize controls on capital movements to promote financial stability. The draft text of the FTAA broadens the prohibitions and extends them to more kinds of capital transfers than that found in NAFTA.

Our vision of international financial regulation has a different logic.

Guiding Principles

1. The international financial system should ensure stability and allocate capital for productive purposes.

2. National and international measures must be taken to minimize the disruptive consequences of speculation and fly-by-night capital flows.

3. International financial institutions must promote sustainable economic and social development instead of austerity and structural adjustment policies that impoverish peoples and erode health care, education and the environment.

4. External debts contracted by repressive military dictatorships are illegitimate, "odious debts" that should be written off. People should not be responsible for paying back loans contracted for fraudulent purposes or loans wasted on projects that never benefited them.

5. The remaining debt for many nations is still so high that it renders sustainable development impossible. Unsustainable external debts that accumulated due to high interest rates must be renegotiated and partially written off, with the remainder payable over longer terms at low interest rates.

Specific Objectives

1. Every agreement between countries at different levels of development must include compensatory financing to allow for achieving the competitiveness that integration implies, and to fund social programs. This approach has been followed within the European Union, where the richer countries have funneled development aid into Spain, Portugal, Greece, and Ireland to lift up their living standards closer to the level of other EU nations. In the Western Hemisphere, the most effective way to level the playing field would be through substantial debt reduction.

2. At a minimum, the bilateral and multilateral debts of the low-income countries identified by the international Jubilee debt cancellation movement should be annulled immediately. In Latin America and the Caribbean, this would involve the annulment of 100% of the bilateral and multilateral debts owed by Bolivia, Guyana, Honduras, Nicaragua, Haiti, Jamaica and Peru.

3. Each nation should conduct an audit into the origin and legitimacy of its foreign debt and of the whole process of indebtedness so as to ascertain in accounting and legal terms whether there is still debt to be paid and from whom it should be collected. These audits will serve to raise awareness of the illegitimate character of much of the debt and collect information that can be taken to the International Court of Justice, as the Brazilian Jubilee movement suggests, or to an international arbitration Panel or Tribunal as discussed below. The audit should use local tribunals with the participation of civil society organizations in order to ensure transparency and access to information for all citizens.

4. On the basis of these audits, the illegitimate debts of middle-income countries, which are owed predominantly to private creditors, must be cancelled. In this regard, illegitimate debts include:

   a) debts which cannot be serviced without placing an unsustainable burden on impoverished people;

   b) debts contracted for fraudulent purposes;

   c) debts from loans wasted on projects that never benefited the people; and

   d) debts which grew due to the compounding of interest rates after Northern countries unilaterally raised interest rates.

5. The foreign debt should be brought before the International Court at The Hague, through the United Nations General Assembly, in order to determine which debt is legitimate and which is not.

6. A neutral international Arbitration Panel or Tribunal should be established under the United Nations to determine which debts should be canceled on the basis of the principles and objectives described above. Such a tribunal should not be placed under the auspices of the IMF, since the IMF is itself a creditor and subject to manipulation by its most powerful members. The tribunal would build on precedents set by national insolvency codes, including Chapter Nine of the U.S. bankruptcy law whereby municipalities may have their debts written down or canceled without sacrificing spending on health, safety and welfare services. Any debtor country would have the right to initiate proceedings on debt to be canceled. Debtor and creditor nations would appoint an equal number of judges to arbitration panels. Debtor nations would make such appointments on the basis of broad consultation with all sectors of society.

7. In as much as the International Monetary Fund and World Bank have failed to oversee the international financial system in a manner that supports sustainable and productive development, they should either be fundamentally restructured or new institutions put in their place.

8. Orthodox structural adjustment conditions demanded by the World Bank and the IMF should be abandoned, as they have manifestly failed to resolve the debt crisis and have caused enormous hardship for the poorest sectors of the population. Instead, countries should adopt economic development policies such as those proposed by the UN Economic Commission for Africa in its African Alternative Framework to Structural Adjustment Programs for Socio-Economic Recovery and Transformation. All sectors of civil society should be consulted in designing policies to promote equitable development rather than just macroeconomic stability.

9. New ways of regulating speculative capital should be agreed upon multilaterally to avoid instability and vulnerability for national economies and for the international financial system. For example, a tax on foreign exchange transactions, as proposed by James Tobin, should be instituted to slow down currency speculation and enable national governments to exercise more control over their monetary policies. The revenues from a Tobin tax (conservatively estimated at about US$200 billion a year from a 0.1% tax) should be administered by an independent United Nations agency with provision for civil society involvement in determining how these revenues will be used for social and economic development.

10. On the national level, authorities must have the ability to regulate flows of "hot" money into and out of their countries. There is a consensus on the need to give priority to direct and productive investments, ensure that investments are long-term, and prevent instability that can cause their rapid flight. Such measures should include taxes on speculative profits, laws requiring portfolio investments to remain within the country for a minimum period, and incentives for direct and productive investments.

11. Any agreement in the Americas must include provisions to allow governments to channel foreign investment into productive purposes instead of speculation. The North American Free Trade Agreement must be amended to this end.

12. Central banks and other national regulatory bodies should be strengthened to ensure that they are not subordinate to national and international banking oligopolies. Central banks and monetary authorities should be free from the short-term electoral interests of parties or groups. Therefore, they must have certain autonomy from the executive branch of government. However, in no way should these financial institutions be completely autonomous bodies free from social control through democratically elected legislatures.

13. Central banks and national monetary authorities must take concerted international action to lower interest rates, stimulate demand for goods and services, and channel investment into production instead of speculation. International cooperation is also necessary to combat money laundering.

14. No international agreement should diminish the capacity of states to establish monetary and financial policies for the development and well-being of their peoples.

15. Independent nations should resist the call for dollarization, as this involves an unacceptable loss of sovereignty and leads to the imposition of severe austerity measures.