Speakers Address Challenges Posed by Rapid Urbanization as Second Committee Debates Implementation of UN-Habitat II Outcome
The General Assembly should continue considering sustainable urbanization in the post-2015 agenda and promote it as a transformational force for achieving and advancing sustainable national development, the Second Committee (Economic and Financial) heard today as delegates met to consider the implementation of the outcome of the United Nations Conference on Human Settlements (Habitat II) and strengthening of the United Nations Human Settlements Programme (UN-Habitat).
Joan Clos, Under-Secretary-General and Executive Director of UN-Habitat, detailed preparations for Habitat III, and called on the Assembly to integrate equity in sustainable urbanization policies to address structural policies and challenges of poverty and inequality that faced many cities.
Poverty and inequality were starkly presented by one billion people living in urban slums right next to modern high-rise buildings, said Bolivia’s representative, stressing that sustainable cities and human settlements would represent a major development challenge over the coming decades.
Noting how the accelerated and poorly controlled urbanization process had contributed to the degradation of living conditions, Senegal’s representative called for the promotion of urbanization policies and sustainable urban management.
Significant progress had been made since Habitat II, said Indonesia’s representative, but several challenges remained. Those included the rapid urbanization process in developing countries, the increase in the number of urban slum dwellers, and the negative impact of environmental degradation on human settlements.
He called on the post-2015 development agenda to reaffirm the universal relevance of well-planned and well-managed cities as drivers for change, and to include the key aspects of sustainable cities and human settlements.
Several delegates welcomed the proposal by the Open Working Group on Sustainable Development Goals for a standalone goal on human settlements and cities. Moreover, El Salvador’s representative noted that habitat issues were not only included in the dedicated Goal 11, but also in Goal 6 on water and sanitation, Goal 7 on access to energy, and Goal 9 on infrastructure, industrialization and innovation.
Linkages between rural and urban areas were mentioned several times. China’s representative said that development of both areas should proceed in an integrated way, as settlements were interlinked and complementary. Similarly, South Africa’s representative noted that while cities were vital to a country’s overall economic development and growth, the rural areas remained responsible for food production, essential resources like water, and migrant labour.
India’s representative also called for a broad approach to cities that acknowledged their “organic linkages with their surrounding ecosystems, in particular the semi-urban and rural areas”. Moreover, sustainable urbanization was not only a developing country issue, though challenges differed. For developing countries, urban citizens needed more public services and jobs, while environmental stress of policies should be limited. Developed countries, on the other hand, should lead on lowering their cities’ ecological footprint, renovating infrastructure, retrofitting buildings and improving efficiency.
During the afternoon session, the Committee held a joint meeting with the Economic and Social Council on lessons learned from the debt crises and the ongoing work on sovereign debt restructuring and debt resolution mechanisms. The meetings were co-Chaired by Sebastiano Cardi (Italy), Chair of the Second Committee (Economic and Financial), and President of the Economic and Social Council, Martin Sajdik (Austria).
In the first panel, panellists discussed their experiences with policy responses to contagion and debt crises and how they affected future debt restructuring. Antonio De Lecea, the Principal Adviser for Economic and Financial Affairs, European Union Delegation to the United States, explained how the Union’s high degree of integration posed challenges that had initially been underestimated as the financial crisis took hold and created a “perfect storm”. The European Union “had to repair the ship in the middle of the storm”, he said.
Mr. De Lecea was joined by Paulo Nogueira Batista, Executive Director for Northern South America, International Monetary Fund (IMF); and Anna Gelpern, Professor of Law, Georgetown University. Mr. Batista described the debt crisis in Argentina and changes made to collective action clauses in debt contracts. Reforms were insufficient, though, and the IMF was critical of board members who wished to go into “mission accomplished mode”. Ms. Gelpern meanwhile, described the legal landscape of debt restructuring, calling sovereign debt a “bizarre institution” as the only debt that was not directly enforceable, while also the only kind that never went away. Despite its peculiarities, debt was “the lifeblood of the global financial system” and the main problems with restructuring related to efficiency, fairness and legitimacy.
The second panel discussed ongoing work on sovereign debt restructuring and debt resolution mechanisms. It was moderated by Alex Trepelkov, Director, Financing for Development Office, Department of Economic and Social Affairs, and also featured three panellists. They were: Reza Baqir, Chief, Debt Policies Division, IMF; Yuefen Li, Head, Debt and Development Finance Branch, United Nations Conference on Trade and Development (UNCTAD); and Benu Schneider, Senior Economic Affairs Officer, Department of Economic and Social Affairs.
Panellists focused on the work of the IMF in the field, described the work of UNCTAD and the outstanding systemic problems like legal forum fragmentation, and a Department of Economic and Social Affairs project that aimed to foster mutual understanding among stakeholders on sovereign debt restructuring.
Speaking today on UN-Habitat were representatives of Morocco, Antigua and Barbuda (on behalf of the Caribbean Community (CARICOM)), Costa Rica (on behalf of the Community of Latin American and Caribbean States (CELAC)), Malawi (on behalf of the African Group), Brazil, Ecuador, Japan, Algeria, Belarus, United Arab Emirates, Bahrain, Singapore, Argentina, Kenya and Russian Federation. A representative of the International Organization for Migration also spoke.
The Committee will meet again at 10 a.m., on 15 October to consider Item 19 of its agenda: Sustainable development.
Background
The Second Committee (Economic and Financial) met this morning to consider UN-Habitat and this afternoon to hold a joint meeting with the Economic and Social Council on the debt crises.
UN-Habitat
JOAN CLOS, Under-Secretary-General and Executive Director, United Nations Human Settlements Programme (UN-HABITAT), introduced the Secretary-General’s report on “implementation of the outcome of the United Nations Conference on Human Settlements Programme (Habitat II) and strengthening of the United Nations Human Settlements Programme (UN-HABITAT)” (document A/69/298) and a note by the Secretary-General transmitting the report on the coordinated implementation of the Habitat agenda (document A/69/343). As well as detailing preparations for Habitat III, he highlighted the need to decide on the venue, final dates, format and organizational aspects of the conference, and to decide on the venue and duration of the third and final preparatory committee meeting. Participation of local Governments and all other stakeholders in the preparatory process and the conference itself had to be ensured, with national reports submitted to the Habitat III Secretariat and funding provided for national, regional and global preparations.
With respect to urbanization and the UN-Habitat programme, he urged the General Assembly to continue considering sustainable urbanization and human settlements in the post-2015 agenda and to promote it as a transformational force for achieving and advancing sustainable national development. The Assembly should implement sustainable transport systems, focused on accessibility, and integrate equity in sustainable urbanization policies to address structural policies and challenges of poverty and inequality that faced many cities. An increase in the regular budget for UN-Habitat was needed to develop the additional capacity required for implementation of the strategic plan for 2014-2019.
VALERIA DENISSE VILASECA CHUMACERO (Bolivia), speaking on behalf of the Group of 77 and China, said that sustainable cities and human settlement would be a major development challenge over the next several decades. Rapid urbanization in Africa, Asia, Latin America and the Caribbean was moving hunger and poverty from rural to urban areas. With the shift occurring largely in developing countries, it was important to promote cities’ resilience against the effects of climate change. World leaders had at the Rio+20 conference recognized the importance of sustainable urbanization. Poverty and inequality, two important elements of the sustainable development goals that needed to be a part of the post-2015 development agenda, were starkly presented by one billion people living in urban slums right next to modern high-rise buildings.
A multisectorial approach that engaged all stakeholders in an inclusive manner required transformative policies on sustainable urban development and human settlement, she said. New modalities of interaction at all levels were needed for central and local national governments to fulfil their roles as governmental stakeholders in global efforts on sustainability. Financing was a critical constraint, and developed countries’ commitments needed to be fulfilled. At this important phase of preparation for the “Habitat III” United Nations Conference on Housing and Sustainable Urban Development to be held in 2016, the international community needed to work together.
Following the speaker, the representative of Morocco noted the importance of Habitat III to Africa, the country’s efforts on sustainable urban development and the work of the United Nations on the same item. In reply, Mr. Clos said Habitat III would be the first implementation conference of the post-2015 development agenda, and that UN-Habitat had recognized Morocco for its work on urbanization and provision of social housing.
TUMASIE BLAIR (Antigua and Barbuda), speaking on behalf of the Caribbean Community (CARICOM) and associating with the “Group of 77” developing countries and China and the Community of Latin American and Caribbean States (CELAC), stressed the importance of voluntary funding in preparation for Habitat III, and called for financial and technical support from development partners for the Habitat agenda. Environmental responsibility, social awareness and economic vitality were important tools in sustainable urbanization. The Samoa Pathway outcome document would be an effective tool for small island developing States who faced the overwhelming challenges of population growth and the increase of slums, poverty, and lack of access to basics like water and sanitation. There should be greater effort in educating the international community to change consumption patterns and lifestyles with respect to land use and urban sprawl. Building regional capacity should take priority.
GEORGINA GUILLEN-GRILLO (Costa Rica), speaking on behalf of CELAC, reiterated the importance of commitments by the Member States to the building of sustainable cities, and of equitable access to basic urban services. He recalled resolution 24/14 of the Governing Council of UN-Habitat, which called for voluntary financial support for those initiatives, and asked Member States and stakeholders to “actively” contribute to the Habitat conference. It was essential to address rapid urbanization by implementing policies to prevent social distress, geographic exclusion and environmental degradation. In order to face future development needs, cities like Lima and Bogota, which were expected to grow to 10 million people by 2025, would require strong commitments in the form of joint efforts, agreed actions and collective initiatives from all stakeholders. He looked forward to substantial advances through continued debate in Habitat III and the fundraising to support it, and strongly supported Ecuador’s proposal to host that conference.
DESRA PERCAYA (Indonesia), speaking on behalf of the Association of South-East Asian Nations (ASEAN), and associating himself with the Group of 77 and China, said that by the middle of the twenty-first century, seven out of 10 people would live in cities, with most of the urbanization expected to take place in developing countries. Accordingly, the post-2015 development agenda was an opportunity to reaffirm the universal relevance of well-planned and well-managed cities as real drivers for change, and must include the key aspects of sustainable cities and human settlements. Significant progress had been made since the Habitat II conference, but challenges remained, including the rapid urbanization process in developing countries; the continuing increase in the number of urban slum dwellers in the world; the negative impact of environmental degradation on human settlements, including climate change, desertification and loss of biodiversity; the increasing vulnerability of urban settlements to natural and human-made disasters; and urban poverty and inequalities within cities.
Cities in ASEAN were the primary sources of wealth, he said, generating about 80 per cent of that region’s total gross domestic product (GDP). Yet, they faced numerous challenges to be environmentally sustainable and liveable. It had been a challenge to meet the expectations that came with the increasing incomes of the region’s population of 600 million; compounded by high rates of rural-urban migration. The Association was committed to ensuring the environmental sustainability of its urban areas, while meeting its people’s social and economic needs. The completion of “Clean Air for Small Cities Projects” in 2012, for example, had successfully enhanced the capacity of smaller and medium-sized cities to develop and implement measures to improve their air quality.
CHARLES P. MSOSA (Malawi), speaking on behalf of the African Group, associated his statement with that delivered on behalf of the Group of 77 and China. With over half the world’s population living in cities and towns, urban areas were facing climate change, resource depletion, food insecurity, and a host of other challenges. Africa wanted to reap the benefits of sustainable urbanization, but was confronted with rural poverty, a chief driver of urbanization. Calling for a comprehensive approach in tackling sustainable urbanization, in the context of the post-2015 development agenda, the African Group asserted that poverty and inequality among urban and rural populations must be a part of consultations.
The first session of the Preparatory Committee for the United Nations Conference on Housing and Sustainable Urban Development (Habitat III) had provided a unique opportunity to take stock of progress, he said. African countries had in 2013 launched a project articulating the continent’s regional priorities for the next 20 years in the area of housing and urban development. Likewise, the African Ministerial Conference on Housing and Urban Development held in February 2014 in N’Djamena had outlined key priorities, which formed the continent’s aligned input to the upcoming Habitat III Conference.
KINGSLEY MAMABOLO (South Africa), associating himself with the Group of 77 and China, and the African Group, made several recommendations for the preparatory process leading to the Habitat III conference, including the issue of the venue. That site must take into account the principle of fair geographical rotation and the capacity of the candidate-select host country. South Africa had been a proponent of the Habitat Agenda and had adopted a comprehensive plan for the development of a sustainable human settlement agenda. He highlighted the importance of the intimate linkages between rural and urban areas. While cities were vital to the country’s overall economic development and growth, the rural areas remained responsible for food production, essential resources like water and for migrant labour. In building on the Habitat Agenda, he called for a continued focus on addressing the needs of women, youth and vulnerable groups.
SERGIO RODRIGUES DOS SANTOS (Brazil), associating himself with the Group of 77 and China and CELAC, described the growing importance of urban expansion and integrated urban planning, and noted the focus of his country’s urban policies on social and economic inclusion and economic sustainability. He welcomed inclusion of a standalone sustainable development goal on cities and hoped decisions contained in the Rio+20 outcome would be included in the post-2015 development agenda. Habitat III would be very important, particularly as it would be the first major United Nations conference following adoption of the new agenda. Preparations should establish a mutually supportive nexus between work in Nairobi and developments in New York on the goals and post-2015 agenda. The resolution should set rules of procedure for Habitat III and needed to define modalities for civil society and local government participation in preparations and the conference itself.
XAVIER LASSO MENDOZA (Ecuador), associating himself with the Group of 77 and China, and CELAC, underscored the importance of moving ahead on urban development. Sustainable urbanization must be one of the priorities of the post-2015 development agenda, which should also address access to services for the most vulnerable groups, such as the elderly, people with disabilities and children. Accelerated urbanization in major population centres in the region had led to distortions in its cities as well as to inequities and general exclusion of their new inhabitants. He said they must look at the resilience of cities and their ability to deal with disasters, in which context his country had established a secretariat responsible for preventing and reducing risks. Ecuador’s housing and settlements policies expressed its aspirations to build a society where people could live well.
TOMOKO ONISHI (Japan) was pleased to see that the human settlement issue had been included in the report. Considering Habitat III to be the key vehicle for the implementation of the post-2015 agenda, her country had established a national committee for the conference to draft the national report. She highlighted the decreasing and aging population, and cities’ resilience to natural disasters as the new challenges facing Japan, especially considering the rapid urbanization in the Asia-Pacific region. She expressed her hope for the conference to set a positive example of true accountability, and to be organized in the most efficient and cost-effective manner, with the Second Committee’s work providing guidance.
KHALED BENHAMADI (Algeria), associating himself with the Group of 77 and China and the African Group, pointed to his country’s high level of urbanization. He noted that implementation of the Government’s housing policies and programmes had improved living conditions for the population. Between 2008 and 2013, 2 million housing units had been built to improve occupation levels. Algerian cities lagged in certain areas and a National Land Management Scheme had been launched for the period 2010-2030 to improve cities. Qualitative policies for city management were needed and he welcomed the Open Working Group’s proposal of a standalone goal on settlements and cities. UN-Habitat should adhere to the principle of universality in representation on its administrative council.
Mr. ZDOROV (Belarus) said the role and need for UN-Habitat was increasing and he called for widening of its geographic reach to include Eastern Europe. A report on the Status of European Cities in Transition was released in 2013 which dealt with former socialist States in Europe. Improvements had been recorded across the region but they were not consistent. UN-Habitat should increase its cooperation with and resource and technical support for middle-income countries, especially on modern and sustainable city planning. He called for joint work between UN-Habitat, the Economic and Social Council and Member States to find common approaches on sustainable development. He noted establishment of a UN-Habitat methodological centre in Minsk to report on members of the Commonwealth of Independent States (CIS), noting that more cooperation between UN-Habitat and the CIS could improve planning in the region.
AMIT NARANG (India), associating himself with the Group of 77 and China, noted that urbanization’s transformative potential had been recognized in several forums and called for a broad approach to cities that acknowledged their “organic linkages with their surrounding ecosystems, in particular the semi-urban and rural areas.” Sustainable urbanization was “by no means only a developing country issue”, though challenges differed. For developing countries, urban citizens needed more public services and jobs, while environmental stress of policies should be limited. Developed countries should lead on lowering their cities’ ecological footprint, renovating infrastructure, retrofitting buildings and improving efficiency. India’s urban areas housed under a third of the population but accounted for over two-thirds of the country’s GDP and 90 per cent of Government revenues. A total of $1.2 billion had been invested in building 100 “smart cities” that used information technology to improve efficiency, with an energy conservation code and design guidelines introduced.
ABDULLAH RASHID AL SUWAIDI (United Arab Emirates), associating himself with the Group of 77 and China, said that, given its rapidly growing population, his country was a model for modern urban planning. Despite enormous challenges, it had managed to achieve housing sustainability, building one of the most sustainable cities in the world. The country was a model for sustainable development in a desert environment, and its strategy should be translated into local solutions around the world. Urbanization challenges could be achieved through the Habitat Agenda, and he looked forward to the Habitat III conference. His country focused on strategies that would create more equitable and sustainable urbanization systems, and it hoped to participate in the development of the new urban agenda, and in finding effective ways to accommodate the increasing urbanization around the world.
IBRAHIMA SORY SYLLA (Senegal), associating himself with the Group of 77 and China, and the African Group, said that imbalances in human settlements and demographic growth had led to the accelerated and poorly controlled urbanization process, which had contributed to the continued degradation of urban living conditions. Urbanization policies and sustainable urban management must be promoted, and Senegal was committed to the path of urban renewal. His Government had implemented effective habitat and urbanization policies, but various constraints had to be addressed. To achieve sustainable development, priority action in urban areas and human settlements management must centre around several issues, including disaster risk prevention and adaptation to climate change, energy efficiency, financial resources allocation, and the implementation of viable transport systems focused on accessibility. In view of Habitat III, he invited States to facilitate the participation of all stakeholders in the preparatory process.
MAJED AL NOAIMI (Bahrain) stressed the importance of the link between the Habitat III outcome document and the post-2015 development agenda. The current economic threats called for a fairer urban development, which would reduce threats to countries’ security and stability. He called for help to be given to poor countries to ensure a decent life and prosperity of their people. The world faced huge challenges of the deterioration of human settlements and the growth of slums. His country had developed housing, health and communications infrastructure that would keep pace with the growth of its population, and it was building more housing units to meet its citizens’ needs for decent living.
GERARDINE JONG (Singapore), associating herself with the Group of 77 and China and ASEAN, stressed that, with unprecedented worldwide urbanization, Governments should continue to improve cities. Singapore was doing its best in that regard, but it was “not an easy feat”. Their long-term, integrated approach to land use optimization planned 50 years ahead. A 2009 Sustainable Singapore Blueprint and a 2012, $108 million Land and Liveability National Innovation Challenge looked to create cost effective, liveable spaces. Through the Singapore Centre for Liveable Cities it compiled a framework for integrated planning and governance that could be a basis for urban development among other high-population growth cities. It shared best practices of urban leadership when it worked jointly with China and co-chaired the Group of Friends for Sustainable Cities with Sweden. Singapore was committed to move forward to Habitat III in 2016.
JOSEFINA BUNGE (Argentina), associating herself with the Group of 77 and China and CELAC, stressed the need for a proactive, cross-cutting approach from the State to urbanization. State actions and policies should emphasize poverty eradication and gender equality with social inclusion a major objective. Active State involvement in urbanization in South America had produced improvements in citizens’ quality of life, with statistics supporting the trend in Argentina. Between 2001 and 2010, Argentines with at least one unmet need fell from 14 per cent to 9 per cent, while the proportion of the population with access to health care increased from 52 per cent to 62 per cent in the same period thanks to the building of 2,200 public hospitals. Building of houses led to a decline in substandard dwellings and a reduction in overcrowding. A comprehensive, interlinked view of the urban setting was needed to overcome remaining challenges, with urban land use in need of democratization and people in those areas needing opportunities to sustain lives there.
ZHANG ZHEN (China), associating himself with the Group of 77 and China, called for strengthened international cooperation in several areas. Sustainable development was essential and economic and poverty eradication were the basic conditions needing to be fulfilled, with addressing inequality also important. Economic growth and environmental protection needed addressing in an integrated manner, while development of rural and urban areas should proceed in an integrated way, as settlements were interlinked and complementary. The gap between the two had to be narrowed in the interest of prosperity. The international community had to show determination and will to enable developing countries to develop sustainably, through honouring commitments to enhance capacities, and respecting nationally developed policies.
JOSHUA MWANGI MUGODO (Kenya), associating himself with the Group of 77 and China, said it was fundamental that Habitat III “guarantee” that its outcomes were taken within the framework of the sustainable development goals developed in Rio+20 and the Open Working Group. To prepare for a high rate of urban growth from its current 32 per cent of total population, Kenya had put in place a national organizing committee for Habitat III, and would produce a country report. Nationally it had provided public-private partnership incentives for low-income housing development and addressed supply-side building constraints. Kenya looked forward to hosting the second Preparatory Committee for Habitat III, where the agenda would be “people-centred,” focus on global implementation and reporting, and would expand the commitment to improving the quality of human settlements for urban and rural dwellers.
RUBÉN IGNACIO ZAMORA RIVAS (El Salvador), associating himself with the Group of 77 and China, and CELAC, said the Open Working Group had included habitat issues in several of the sustainable development goals. Among those were Goal 11 on making cities and human settlements inclusive, safe resilient and sustainable; Goal 6 on water and sanitation; Goal 7 on access to energy; and Goal 9 on infrastructure, industrialization and innovation. His country faced a housing deficiency, was vulnerable to climate change impacts, and had deep-set problems of violence and insecurity. It had prepared a proposal for a national housing and settlement programme, addressing, among others, the issues of access to housing and basic services, financing, social cohesion, and institutional system and legal framework.
YULIA A. PLOKHOVA (Russian Federation) highlighted the increased growth of cities and the need for measures to respond to it. Her country was prepared to cooperate with the programme, including by sharing its experience in city development. The level of urbanization in the Russian Federation had reached approximately 74 per cent, and the country was focusing on its population’s housing and infrastructure needs as well as on the well-being of its citizens living in cities. Habitat III would be an important step in achieving sustainable development, and her country was preparing for its participation in the conference. It would draft the national project report in December, and it planned to participate in the preparatory committee’s preparation of its outcome document.
MICHELLE KLEIN SOLOMON, Permanent Observer for the International Organization for Migration, noted the link between urbanization and migration. Usually, migration was from rural to urban areas but other links should be considered, too. Migrants from abroad usually settled in cities, raising questions about delivering services to diverse societies and maintaining social cohesion. Newcomers to fast-growing cities often settled in hazard-prone, poorly planned areas with limited access to services and were among the worst affected in disasters. If included in urban development policies and disaster risk reduction strategies, migration could be important as a preventative and response measure to disaster situations.
Debt Crisis: Opening remarks
SEBASTIANO CARDI (Italy), Chair, Second Committee (Economic and Financial), introducing the two afternoon panels on the international debt crisis, pointed to a “new urgency” in tackling sovereign debt after the financial crisis had illustrated the global nature of the problem. Research into feasibility and configuration of a possible debt workout mechanism was ongoing in various forums. The Second Committee (Economic and Financial) and Economic and Social Council were well placed to contribute, particularly in light of several General Assembly resolutions calling for intensification of efforts to prevent debt crises. International dialogues offered the chance to share lessons learned.
MARTIN SAJDIK (Austria), Economic and Social Council President, said addressing debt problems would be important in the post-2015 development agenda, as developed and developing countries suffered from high public debt burdens. The risk of contagion was a serious threat to international financial stability. Progress had been made through the debt relief initiatives, such as the Heavily Indebted Poor Countries (HIPC) programme, but sustainability problems had not been eliminated. Some States had not benefited at all. There were differing views on the way forward. Some States were happy with improved contractual arrangements in bond contracts and a voluntary code of conduct; others called for further policy action on improving the architecture for debt restructuring and a sovereign debt resolution mechanism.
Panel I
Moderating the first panel, “Lessons learned from policy responses to contagion and debt crises and implications of the changing landscape for debt restructuring”, was Richard Kozul-Wright, Director, Division on Globalization and Development Strategies, United Nations Conference on Trade and Development (UNCTAD). He stressed that international dialogue was needed to establish a more efficient debt resolution mechanism.
Panel I included Antonio De Lecea, Principal Advisor for Economic and Financial Affairs, European Union Delegation to the United States; Paulo Nogueira Batista, Executive Director for Northern South America, International Monetary Fund (IMF); and Anna Gelpern, Professor of Law, Georgetown University.
Mr. DE LECEA said the Monterrey Consensus had identified the importance of sustainable debt financing. Low income over-indebted countries had benefited from write-offs through the HIPC and Multilateral Debt Resolution Initiative, which wrote off around $110 billion of debt. That had allowed them fiscal space to invest, grow and tap into international financial markets for the first time. That posed its own risks, including the coordination of many bond holders, which had been illustrated through a few “spectacular” litigation events.
The European Union’s high degree of economic and financial integration posed its own challenges, which had initially been underestimated, he said. The financial crisis had created a “perfect storm” prompting crisis management and institutional reform. The European Union “had to repair the ship in the middle of the storm,” he said, adding that the insertion of Collective Action Clauses with aggregation provisions into new bonds with maturation of over one year was a positive step to combat future problems. It was also important to reduce the reliance on credit rating agencies and to bear in mind always the financial stability risks posed by restructuring, and not just the legal feasibility. Prevention was much better than cure and the European Union had also worked to improve governance and surveillance.
Mr. BATISTA stressed that he was giving his personal opinions, not those of the IMF. He noted that the IMF, as a creditor, had faced risks associated with the Argentina litigation and had been following developments closely, if “rather helplessly”. It had been ready to present an “amicus curiae” brief to the United States Supreme Court in 2013 but intervention of the United States Treasury led to the Fund holding off. Three individual countries then presented their own amicus briefs. The Court had refused to consider the Argentine case and lower order decisions prevailed. Holdouts by “vulture funds” prevented Argentina from paying its debts and that was an unprecedented situation caused by the intervention of the judicial system of one country. In 2014, the Fund’s executive board had endorsed reform of “pari passu” clauses to clarify that the New York decision was not a global precedent and enhancement of voting on collective action clauses.
Reforms remained insufficient, he said, saying the IMF was critical of board members who wished to go into “mission accomplished mode”. Almost $1 trillion of bonds had weaker collective action clauses or none at all, and States were vulnerable to copycat litigation. Grenada was suffering from a holdout and, while it may resolve the problem, would do so in the shadow of increased leverage held by speculative investors following the decision against Argentina. The United Nations had a role to play because of its universality. Its resolution on a sovereign debt resolution mechanism had passed with a large majority, with only six per cent against. In the IMF, the unequal distribution of voting power would have meant that the same resolution would have been defeated. While he was not calling for one-member-one-vote in the IMF, the United Nations played an important balancing role
Ms. GELPERN described the legal side of the problem of debt restructuring, calling sovereign debt a “bizarre institution”. It was the only debt that was not directly enforceable, but was the only kind that never went away. Assets could not be taken, but nor could Governments go bankrupt and get a fresh start. Despite its peculiarities, debt was “the lifeblood of the global financial system”. The Argentina case had highlighted the problem with “foreign law” debt. Creditors could not force the country to pay but could cause damage to other parties in the system, attempting to create “enforcement by spillover”.
She said debt restructuring and management were inter-connected. The main problems with restructuring were efficiency, fairness and legitimacy. Efficiency related to the sustainability of the restructuring profile and its timing, with “too little, too late” a common problem of responses. There was also no single, comprehensive legal process for restructuring. Furthermore, fragmentation was also an issue that affected efficiency and made it difficult to arrange a fair process, prompting holdouts to wait for better terms. Outcomes also had to have broad acceptance and legitimacy and the unintelligibility of restructuring processes to people and creditors damaged that. The lack of involvement of all interested parties harmed its legitimacy. She called for a modular approach. Contracts and collective action clauses needed reform, but the approach to those matters should move away from an obsessive focus.
In the ensuing discussion, the representative of Belgium questioned where the United Nations should focus its actions. Mr. BATISTA noted the inability of the official sector to deal with the power of private finance and the need for the official sector, including the United Nations, to alter that balance.
Responding to the representative of France, who asked about the concrete meaning of collective action clauses in debt contracts, Mr. DE LECEA said that the case of Greece was a clear example where creditors had prevented restructuring. Mr. BATISTA added that the IMF solution was aggregating all the series of debt that were eligible for restructuring and holding a single vote of all creditors. That made it more difficult for vulture funds to buy blocking minorities
The representative of Viet Nam asked for further elaboration on who involved in debt restructuring processes had intimate knowledge of their workings. Responding, Ms GELPERN stressed that there was no “nefarious conspiracy”, with knowledge coming from “repeat play”. Ten law firms did the bulk of debt restructuring, with three firms responsible for about half. In those firms, about 10 people were deeply involved in the work. The Paris Club had established a repository for knowledge, but its increased transparency was a recent development. Multilaterals working in restructuring were also gaining knowledge in their work.
Also taking part in the interactive discussion were representatives of Japan, Ethiopia, and Indonesia.
Panel II
Moderating the second panel, “Ongoing work on sovereign debt restructuring and debt resolution mechanisms” was Alexander Trepelkov, Director, Financing for Development Office, Department of Economic and Social Affairs (DESA), who said that all efforts must be directed at building a robust and resilient financial architecture for sovereign debt restructuring.
Panellists included Reza Baqir, Chief, Debt Policies Division, Strategy, Policy and Review Department, IMF; Yuefen Li, Head, Debt and Development Finance Branch, Division on Globalization and Development Strategies, UNCTAD; and Benu Schneider, Senior Economic Affairs Officer, Financing for Development Office, DESA.
Mr. BAQIR described the IMF’s work in the area of sovereign debt restructuring, as well as what remained to be done in the coming months and years. The Fund had been working on those issues for some time, proceeding step-by-step due to their complexity. Concerning the stock problem, IMF intended to brief its Board periodically on the pace of adoption of new contractual provisions, as well as to promote the use of those provisions through its forums, such as a meeting for debt managers from around the world.
Focusing on the relationship between sovereign debt restructuring and the funds-lending framework, another strand of work underway at IMF, he said that systemic exemption had been used to allow fund lending without debt restructuring in Greece, despite a high uncertainty of its debt sustainability. It had been done so due to the risk of contagion on other Eurozone countries. However, it had represented a “quick fix”, not a coherent, long-term solution. Lending needed to become more flexible by way of a re-profiling option.
Ms. LI said the topic and timing of that meeting could not be more opportune, with an increasing number of least developed countries entering the bond market on the one hand, and the Argentina litigation case on the other. The international community’s aspirations for efficient, timely and fair debt restructuring must be met, and certain gaps must be filled. HIPC Debt Initiative countries might still be subject to attacks by vulture funds. Highlighting the outstanding systemic problems, such as legal forum fragmentation, she noted that a ruling in a New York court might not be accepted in London, and rulings on the same issue might differ between different courts.
UNCTAD’s work had been intensified with the offset of the global financial crisis, she said. In 2013, it had turned its focus to the designing and discussion of debt workout mechanism, a cross-cutting area covering legal, political, economic and social issues. An inclusive working group had been established, major problems had been identified in facing debt restructuring mechanisms, including those related to creditor coordination, legal forum, procrastination and efficiency. Also identified were the principles of legitimacy, impartiality, transparency, good faith, standstill and debt sustainability as the basis on which to decide the processes and institutions for debt workout mechanism.
Ms. SCHNEIDER said that the DESA project on sovereign debt had tried to foster mutual understanding among different stakeholders in identifying sovereign debt restructuring. She outlined various restructuring options, depending on the type of debt, including debt to multilaterals, official creditors, commercial banks and bond debt. For example, debt to commercial banks was covered by the London Club, and there were “no rules of the game” and no oversight body.
There was a lot of diversity in sovereign debt restructuring, she said, and its costs were very high. One of the big achievements of the expert group meeting was that it had led to a greater understanding of problems between the private and official sectors. For example, they looked at the cost of restructuring and the issue of delay differently. There was now more ground to find solutions going forward. She also highlighted the quality of data as important to the debate, and called for a registry of debt to be set up to ensure a timely overview.
In the ensuing interactive dialog, the representative of Ecuador commented on the lack of supervision in the international financial system. People should be prioritized over capital, he said, expressing his belief in societies with markets but not in market societies.
Guyana’s representative posed questions about Argentina, and what a “real fix” looked like in terms of effective sovereign debt restructuring mechanism. With CARICOM problems often under the radar, he also enquired about effective responses in situations that were not of systemic importance.
The representative of Brazil said that it was important to foresee a follow-up action to the panel discussion.
Ms. SCHNEIDER, in response to small economies becoming a target, said that safety clauses could be added to protect them, with work already underway to take care of that problem. On copycat litigation, she said that it would affect future debt restructuring and strengthen holdout creditors. There were proposals on the table that addressed an adequate “fix” to debt restructuring, but they must be discussed more extensively.
Ms. LI said copycat litigation was a real problem. It was happening and it would happen even more, because the ruling had taken away incentives for debt restructuring. In response to Brazil’s representative, she said all presentations at the meeting would be available on the UNCTAD website.
Mr. BAQIR, in response to Guyana’s representative on whether there was a “real fix”, said that on the IMF Board there was no majority support for a treaty-based approach. The Fund had a lending decision to make. In the meantime, it would continue to use the current policies and legal framework.