FAIR AND TRANSPARENT ARBITRATION ON DEBT

Issues Paper No. 1/2002

AFRODAD African Forum and Network on Debt and Development
Box MR 38, Marlborough, Harare, Zimbabwe
Tel: 263-4-702093; fax: 263-4-702143
e-mail [email protected]; [email protected]
web: http://www.afrodad.org

[Excerpts only: Full text, including Section B with legal
commentary, available at
http://www.afrodad.org/html/research_arbitration.htm and
http://www.una.dk/ffd/south_ngo/AFRODAD_Debt_arbitration.htm ]

Preface:

This Issues Paper is an attempt to help move the debate on Debt in
Africa beyond the unfulfilled demands made by the severely indebted
low income Debtor countries and by global civil society for Debt
cancellation. Total debt cancellation of both bilateral and
multilateral Debt will provide finance for economic and human
development. For Africa this could mean a minimum of US$13 billion
per year. The legitimate demands for Debt cancellations have not
met with a genuine and positive response by Creditor governments
and institutions. As donors, creditor governments and institutions
continue to dominate the decisions regarding the Debt relief
initiatives. Their perceptions to the issues of Debt tend to have
the interest of safeguarding the existence and well-being of the
international financial system rather than have any concern for the
development of the people of the indebted countries. This reflects
a lack of fair and transparent global governance that should
protect the interests of the weak debtor nations and their people.

A structural change is now required to reshape the global relations
around the Debt crisis. Global civil society, the African
Governments and the intergovernmental institutions are called upon
to demand and work towards the establishment of a Fair and
Transparent Arbitration mechanism under the United Nations as part
of a sustainable way of finding a solution to the Debt crisis.
Various options are available at the global level to deal with the
problem. In the final analysis, we suggest that an International
Arbitration Court is long overdue and is feasible.

This Issues Paper is in two parts; the first provides the
introduction and rationale for Arbitration and the second part
provides a summary of the opinions sought from African Lawyers from
the East, Southern and West Africa on the arbitration process.
These were Dr. Halima Noor-Abdi (Kenya), George Kunda (Zambia),
Quentin Tannock (Zimbabwe) and Dominic Ayine (Ghana). We thank the
contributors for their good efforts. AFRODAD takes full
responsibility for the content of this document. Their specific
contributions are available at AFRODAD as Discussion Papers. ...

We take this opportunity to thank The World Council of Churches
(WCC) for enabling AFRODAD to undertake this work. We also thank
Dr. Rogate Mshana for his encouragement in our ongoing search and
advocacy for sustainable paths to development in Africa.

Opa Kapijimpanga AFRODAD Coordinator.

Introduction

The persistence of the debt crisis faced by the severely indebted
low-income countries and the inability of the international
community to find both immediate and sustainable solutions has
raised concern and the need for structural changes at the global
level to resolve the problem. There are many facets to the debt
crisis but the fundamental weakness is that the Creditors, who
constitute the donors, continue to dominate the decision making
regarding how to resolve the Debt crisis. ...

Part A Background and rationale for Arbitration:

Arbitration is one of the alternative methods of resolving a
dispute outside the traditional court system. In this process a
third independent party would provide a final decision on a
dispute.

Dispute in the arbitration process can be defined to include the
existence of divergent or opposite views which cannot be reconciled
by two parties and which therefore requires a third party, to make
a decision on which view should prevail depending on the arguments
presented by the two parties. Arbitration agreements allow for
settlement or final decisions to be made on grounds other than
purely legal principles, such as considerations of justice, equity
and human rights.

In the case of the Debt problem faced by heavily indebted low
income countries all over the world, there are the divergent or
opposite views between the Debtors and the Creditors that should be
subjected to Arbitration. These include the following:

a). The absolute need for cancellation of official bilateral and
multilateral debts:

While the debtors have made undisputed and legitimate claims and
demands for debt cancellation, the creditors on the other hand
claim that debt cancellation is not the action needed to resolve
the problem. So whether or not there should be debt cancellation is
a subject of arbitration. The Calls for debt cancellation have been
made in the following contexts (to name a few):

* Jubilee 2000 movement, which collected millions of signatures
from all over the world calling for total debt cancellation. The
Call was ignored by the Creditor governments and international
Financial Institutions.

* The Secretary General's Report of December 2000 to the Financing
for Development Preparatory Committee Meetings noted the difficult
situation of debt confronted by heavily indebted low-income
countries; no matter how skilled their economic management is. ...

* The Third United Nations Conference on the Least Developed
Countries (UN LDC-III) which was held in Brussels in May 2001 had
fully acknowledged that the external Debt overhang of the majority
of LDCs constitutes an obstacle to their development efforts and
growth and that Debt service takes up a large part of the scarce
budgetary resources that could be directed to productive and social
areas ...

* The African Ministers of Finance meeting in Addis Ababa in
November 2000 as part of the Regional Meetings on Financing for
Development called for an independent body that would not be unduly
influenced by the interest of the creditors ...

* The High Level Panel appointed by the UN Secretary General to
provide expert opinions of various issues in the context of
Financing for Development process, led by Mr. Ernesto Zedillo
recognised the existence of the Debt crisis and the inadequacies of
the current Debt relief initiative ...

b). Reassigning the responsibility for the Debt crisis and burden
partitioning where that might be necessary.

Currently, the assumption of the current Debt relief Initiatives is
that the Debtor countries are solely responsible for the crisis.
While accepting part of the responsibility, due to lack of proper
debt management, corruption and other shortcomings, the Debtors
point to the large impact of the external factors that have been
identified to have contributed to the Debt crisis including the
existence of a global trade regime in which the Debtor countries
continue to suffer declines in terms of trade and ongoing lack of
global market access; natural disasters and factors introduced by
inappropriate policy advice by IMF and the World Bank as well as
the push factors in lending, to mention a few. Creditors never seen
to be part of the problem, which they obviously are.

c). The way to resolve the debt crisis remains a point of
divergence too as reflected in the fact that Creditor initiated and
imposed Debt Relief Initiatives such as HIPC do not address the
Debt crisis adequately. ...

d). There is a need for Arbitration on specific types of Loans or
debt in particular the odious and illegitimate debts which are
categorised to include the following: - Debts that cannot be
serviced without causing harm to people and communities. It is a
violation of human rights to repay debt at the expense of meeting
human development needs. - Debts incurred by illegitimate debtors
and creditors acting illegitimately which includes odious debts and
loans stolen through corruption. - Debts incurred from illegitimate
uses such as projects that did not benefit the people as were
intended. - Debt incurred through wrong policy advice or a result
of external factors over which debtors have no control. - Debt in
which the money was actually stolen and banked in the North

e). Return of wealth stolen from developing countries and held in
the rich countries.

f). One of the major reasons for the lack of political will to
resolve the debt crisis is that the Creditors see the protection of
the international financial system as the basis of decision.
Debtors on the other hand argue that a human rights criterion would
better reflect the so-called partnership that is expected to exist
between the developed countries and the developing countries. ...

Instruments and institutions:

There is a need for finding an appropriate instrument and
institution to deal with the special case of the Debt problem.
Existing instruments such as the Permanent Court of Arbitration
based in The Hague, the United Nations Commission on Trade could
either have its mandate extended to include Debt issues or a new
Commission specifically for Debt could be established. We also
argue that in the end, the optimal solution is to set up an
International Arbitration Court on Debt through a Treaty.

Part B: Issues raised by the Lawyers

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