The Right to Unilateral Repudiation of Odious, Illegal, and Illegitimate Sovereign Debt as a Human Rights Defence

States enjoy the right to unilaterally denounce sovereign debt that is odious, illegal and illegitimate under strict circumstances. This entitlement does not exist where the debt(s) was/were incurred lawfully. A particular form of denunciation is sovereign insolvency, whose unilateral manifestation, is treated in practice by similar principles and responses as those apply mutatis mutandis to other forms of debt management. This chapter identifies, in addition to insolvency, five forms of unilateral debt denunciation that arise from the limited practice of states, which are moreover consistent with general international law. These are: (a) repudiation or non-enforcement of arbitral awards on public policy grounds; (b) denunciation on grounds of executive necessity and/or the right to fiscal/tax sovereignty; (c) direct unilateral repudiation on the basis of reports by national debt audit committees; (d) repudiation of contracts when creditor/investor violates human rights and of unconscionable concession contracts; (e) re-negotiation of bilateral investment treaties and concessions.

Sustainable Financing through Domestic Resource Mobilization (DRM)

Domestic resource mobilization (DRM) has assumed increasing significance as a form of financing for sustainable development and economic growth in Africa. This chapter explores the present and future roles of international law concerning the regulation of this form of financing for sustainable development and economic growth in Africa, as well as the main obstacles and challenges of mobilising DRM in African developing and less developed countries. While there is a wide array of questions and issues related to this form of financing for development that international conferences and summits, in particular the Monterrey Consensus on Financing for Development and the Addis Ababa Agenda for Action, have addressed in various forms and with different emphasis and results, the chapter focuses exclusively on some substantial issues, such as the use of DRM for the financing of the new Sustainable Development Goals and the relationship between DRM and poverty alleviation actions and strategies.

Citizen Debt Audits

The financial significance of public debt and its impact on government budgets justifies and, in fact demands, the continuous undertaking of audits aimed at investigating the entire debt process to determine which liabilities the national taxpayer is burdened with. It is clearly important to know if the budget is tainted with irregularities and/or fraud and if the stated expenses and losses are legal and legitimate. Audits also inform who benefited from the corresponding resources, how they were applied, if they complied with the existing legal and administrative regulations, as well as the social and environmental impact. Given that the general population pays a country’s public debt—through heavy tax burdens and the inadequacy of public services (budgetary resources are absorbed to pay debt obligations)—citizen participation in debt audits is essential. This chapter provides a snapshot of the Citizen Debt Audit experience in Brazil, Ecuador and Greece.

Illicit Financial Flows, Sovereign Debt, and Human Rights

In recent years, there has been increasing attention to the problem of illicit financial outflows—broadly defined as funds that are illegally earned, transferred and utilized outside the country of origin in contravention of that country’s relevant legal framework. Illicit financial outflows divert resources away from activities that are essential for poverty reduction, sustainable development and the realisation of all human rights. They also contribute to the accumulation of external debt as governments that lack domestic resources as a result of these flows may resort to costly external borrowing. This chapter examines the nature of illicit financial flows, the factors that facilitate them and the measures taken by states, individually and collectively, to tackle them. It also discusses the impact of these flows on the realisation of human rights in the countries of origin and proposes concrete measures by which to curb illicit financial flows.

Debt Crises, Economic Adjustment, and Labour Standards

This chapter examines the relation between economic adjustments, on the one hand, and labour standards, on the other. Section I reviews how labour standard issues have been addressed in different economic adjustment programmes, often initiated at the behest of international financial institutions, or the institutions of what was formerly known as the ‘Troika’. Subsequently, Section II analyses the legal and practical implications thereof. It explains how several labour law reforms required by international financial institutions in the context of economic adjustment have, on a number of occasions, driven countries into violations of international human rights law and international labour law in particular. Section III goes on to examine the economic case of deregulatory labour law reforms in the context of economic adjustment. It shows that the empirical evidence for negative economic effects of labour law in general and in the context of financial and economic crises in particular is at best highly controversial and cannot justify the highly problematic social effects and breaches of international law these reforms have often entailed.

Sovereign Debt and the Right to Development

The right to development is an over-arching, synthesis-based collective right that has found a solid place in the international human rights architecture. Under the UN Declaration on the Right to Development, States have the primary responsibility for establishing national and international conditions favourable to the realisation of the right to development. According to the high-level task force on the implementation of the right to development, this responsibility is at three levels: (a) States acting collectively in global and regional partnerships; (b) States acting individually as they adopt and implement policies that affect persons strictly not within their jurisdiction, and (c) States acting individually as they formulate national development policies and programmes affecting persons within their jurisdiction. The right to development also implies the full realisation of the right of peoples to self-determination. In many contexts, however, onerous debt service obligations and related conditionalities often undermine country ownership of national development strategies, thereby threatening the right to development.

Sovereign Debt Crises

Creditor responses to sovereign debt crises suggest that they view such crises as problems of debt management on the part of the countries facing debt repayment difficulties. Thus, for example, debt relief and restructuring mechanisms coordinated by the international financial institutions place emphasis on correcting perceived imprudent debt management through a series of economic adjustment measures. Little attention, if any, is paid to addressing the underlying causes of the debt crises. This chapter examines the various causes of sovereign debt crises and the role that debt management plays in their eruption or in addressing them in a sustainable manner.

The Historical Context of Sovereign Debt

Sovereign debt crises are not a new phenomenon. Thus, history offers useful insights into the complex nature of sovereign debts and ways of addressing debt crises. This chapter explores sovereign debt problems and the responses to such problems in historical perspective. The chapter discusses historical episodes of sovereign debt defaults, how such defaults were settled and the impact of sovereign debt defaults on international relations. It also deals with the issues of odious debts, colonial ‘sovereign’ debts, reckless lending and borrowing and fairness to repay.

Human Rights and Sovereign Debts in the Context of Property and Creditor Rights

The chapter reflects on the strikingly different origins of ‘human’ versus property and creditor rights, because the differences have implications. It then highlights the importance of the enforcement of property and creditor rights for the attainment of other human rights, especially those of an economic nature. There follows a discussion of the wide gap between aspirational human rights and economic reality and demonstrates the poorly understood interconnections between sovereign debt and human rights, because most writings on the topic fail to recognize the trade-offs and incompatibilities that arise because of existing property and creditor rights. Neglect of property and creditor-rights considerations has led many contemporary human rights advocates down an infertile intellectual and practical path.

The Role of Credit Rating Agencies in Sovereign Debt Markets

Since the global financial crisis of 2007-2009, the leading credit rating agencies (CRAs) have faced an increasing level of legal and regulatory scrutiny in the United States (US) and in the European Union (EU). This chapter sheds light on the promise and perils of sovereign credit ratings in the light of the European sovereign debt crisis. The leading CRAs have been blamed for providing investors with inaccurate credit ratings, facing inappropriate incentives and lack of oversight. This chapter addresses the evolving function performed by CRAs over the past century. Traditionally, CRAs are private market actors assessing the creditworthiness of borrowers and debt instruments. Since the first sovereign bond ratings assigned in 1918, the rating business has grown in size and importance. Sovereign ratings supposedly predict financial distress of governments. Their role has shifted over the last four decades. Although they have repeatedly been blamed for being poor predictors of sovereign debt crises, CRAs continue to play a key role in modern capital markets.