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Responsible Financing
 We need internationally recognised legal standards for responsible financing. Sovereign debt of developing countries continues to receive ad hoc and haphazard treatment, and the poor in developing countries are paying an unfair price.
No matter how much debt is cancelled or "swapped" future debt crises are inevitable if the current system of international lending and borrowing is not restructured. Jubilee Australia is working with the international debt campaign to build a global responsible financing framework — one which incorporates principles of fairness, mutual accountability and transparency. Countries lending and borrowing at an international level will then have to abide by the fair banking laws that we Australians now take for granted at a personal level.
BACKGROUND
Also referred to by policy-makers as "responsible financing" or "sustainable lending", the central idea is that responsible or prudent lenders do not lend to countries that are unlikely to be able to pay them back. Instead, these countries require grants or resources on extremely concessional levels in order to remain debt sustainable. This argument has long been made by the global debt movement.
What has changed in the global economy to make ‘responsible lending’ a hot issue in international dialogue on debt and aid over the past year?
- The increased prominence of developing country lenders such as China, India and Brazil has unsettled "traditional" donors and creditors who are arguing that "new" lenders will contribute to new rounds of unsustainable and irresponsible debt in developing countries. However this argument tends to ignore the record of irresponsible and unsustainable lending practices by many traditional lenders in the past.
- The Norwegian Government’s 2006 decision to cancel US$80 million in debt owed to five countries acknowledging shared responsibility has emboldened efforts of campaigners to secure recognition for the doctrine of illegitimate debt.
- The current crisis hitting the US sub-prime mortgage market has focused international attention on the issue of predatory lending and the need to enforce responsible behaviours by lenders.
- The activities of vulture funds — who buy up developing country debt at a significant discount then sue to recover the full amount of the debt plus interest, penalties and legal fees — has also highlighted the need for contractual changes to loans and amendments to national legislation to prevent this kind of action against the world’s poorest and most vulnerable countries.
What has been the response from international institutions and organisations?
- The World Bank and IMF offered the debt sustainability framework, but this initiative represents only a voluntary coordination tool among creditors and does not offer any assessment of the qualitative aspects of the loan finance on offer.
- The G8 and G20 are debating a “Responsible Lending Charter” which states that, “responsible lenders ensure that their lending decisions meet the need for funds of recipient countries in a way that matches their current and future ability to service debt” and commits lenders to “fully share information on their lending practices”.
- In February 2008 the OECD published its “Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Low-Income Countries.”
EURODAD (European network on debt and development) has proposed a Charter on Responsible Financing. The Charter aims to outline the essential components of a responsible, legitimate loan. It outlines what mutual accountability and transparency look like in practice and suggests that all lenders and sovereign borrowers should adhere to a set of internationally agreed responsible financing standards. This will help enforce and reward responsible behaviour by lenders and borrowers and ensure that human rights and environments of recipient nations are respected. It will ultimately prevent future rounds of irresponsible and illegitimate debt for which the poor in developing countries are currently paying the high price.
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