UN Expert urges Argentina to audit its foreign debt

UN Expert urges Argentina to audit its foreign debt

BUENOS AIRES (29 November 2013) - The United Nations Independent Expert on foreign debt and human rights, Cephas Lumina, today urged Argentina to audit its external debt in line with the UN Guiding Principles on Foreign Debt and Human Rights, which call for every State to conduct transparent and participatory periodic audits of their debt or lending portfolios.

Speaking at the end of his first visit* to the country, Mr. Lumina noted that concerns had been raised about the legitimacy of some of the debts contracted prior to the crisis of 2001, including allegations of criminality in the manner in which this debt was assumed, particularly during the military dictatorship (1976-1983).

“Such an audit will help promote accountability in public debt management and can usefully inform future borrowing decisions by the State as well as its debt strategy, expenditure on development plans and the realization of human rights,” he said.

The Independent Expert commended the Government’s efforts to improve the well-being of the people of Argentina, but noted that many challenges remained particularly with regard to addressing poverty and social exclusion.

Debt service still comes at a high cost, although official statistics indicate that the country’s debt burden has declined as a result of the debt restructurings in 2005 and 2010. The exclusion from the international financial markets has forced Argentina to rely on its foreign reserves to service debt, and these have fallen sharply from about US$50 billion to less than US$33 billion. “If this trend continues, the Government might face difficulties in honouring its debts,” he warned.

Mr. Lumina urged the Government to intensify its efforts in improving the social conditions of the people and promoting the realization of human rights by ensuring, among other things, that its public policies on foreign debt are informed by the UN Guiding Principles on Foreign Debt and Human Rights as well as the State’s obligations as laid out in the Constitution and the international human rights treaties ratified by Argentina.

The Expert noted that the 1994 constitutional amendments explicitly gave constitutional status to several international human rights treaties, including the International Covenant on Economic, Social and Cultural Rights, which requires Argentina to use ‘the maximum of its available resources’ to ensure the full realization of the rights to food, health, education, social security and work.

“Argentina is obliged to ensure that these rights are adequately satisfied before using public resources to achieve other State objectives unrelated to human rights, such as debt service,” the expert said “At the very least, the State must ensure the satisfaction of minimum essential levels of each economic, social and cultural rights.”

“Vulture funds”

Mr. Lumina noted that the implications of the decision of a New York Court ordering the Argentinian Government to pay US$ 1.3 billion to hold out hedge funds (termed ‘vulture funds’ because of their predatory behaviour) extends beyond the particular case of Argentina.

“The decision essentially reinforces the notion among creditors that refusing to participate in sovereign debt restructurings and suing for recovery of the full face value of the debt plus interest is an appropriate avenue to follow,” he warned.

“In my view, and indeed that of many others, including the International Monetary Fund, the decision will undermine the ability of countries facing similar difficulties to restructure their debt in an orderly, timely, fair and efficient fashion,” the Independent Expert said.

The Expert urged all countries “to enact legislation, as a matter of priority, to limit the ability of unscrupulous investors to pursue immoral profits at the expense of the poor and most vulnerable through protracted litigation.” He also called for the creation of an international rules-based framework for the impartial, efficient and rights-sensitive resolution of sovereign debt problems.

During his visit, Mr. Lumina met with senior Government officials, as well as representatives of the country’s Central Bank, Supreme and Federal Courts, international financial institutions, civil society and academia.

He also visited the Museum on External Debt in the Faculty of Economic Sciences at the University of Buenos Aires which raises public awareness about the country’s debt and the cities of Cordoba and Florencio Varela, where he met with representatives of civil society and academic institutions.

The Independent Expert will present a full report containing his findings and recommendations to the UN Human Rights Council in March 2014.

(*) Check the Independent Expert full end-of-mission statement: http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=14040&LangID=E

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