To finance development, many poor countries have to take recourse to external loans. By itself this is not bad or dangerous because the debt can be used to , f. i., invest in infrastructure, raising the output of the economy.
But if loans are taken and given without considering the economic capacity of the debtor, the repayment could become a problem. In the 1970s and 1980s this led to the so called “Third World Debt Crisis”. Today we can observe a similar trend: Poor countries in Africa, Asia and Latin America have comparatively easy access to fresh money because low interest rates in the Global North make investments in the Global South very attractive.
Rules for responsible borrowing and lending are important since they make clear, that creditor and debtor share responsibility for the success of the lending operation.
Without a framework for sovereign debt restructuring the debtor is at the creditors’ mercy
But in our capitalistic economic system, state insolvency is not an unusual phenomena. If a country is not able to service its debt anymore, it is at the mercy of their creditors’ arbitrary decisions. In the current international financial architecture, a country’s creditors can decide on their own if and how much of the debt is cancelled. A process which helps a sovereign debtor to restructure its debt timely in a fair, sustainable and comprehensive way, comparable to national insolvency procedures people and companies are able to draw on e.g. in Germany, is not available.
erlassjahr.de (Jubilee Germany), the German alliance for debt relief with more than 600 supporting organizations in Germany and along with more than 50 similar networks world wide, wants to fill this gap of the international financial architecture. The central mission of all activities of Jubilee Germany is the establishment of a fair, independent and transparent sovereign debt workout for states. To achieve this aim, we work together with national and international decision makers, academics and activists in creditor and debtor countries on different levels.
Human Rights over Debt
If it comes to sovereign debt crises money is not the only thing of concern. First of all, it is about humans. Sovereign debt crises have direct impact on the population of the affected countries. If money is spent for debt service, the state has to save money by raising taxes, implementing school fees or cutting expenses for health care. Especially the poorest and most vulnerable of the society suffer from these measures.
Jubilee Germany works hard to achieve that more importance is ascribed to the living conditions of humans than to the reimbursement of debt.