Jubilee Debt Campaign, which works for the
cancellation of unpayable and unjust Third World debt, today called on the British government to support a neutral debt arbitration system to radically reform international lending.
The group said that Iceland’s President was correct to assert that states in debt have rights that trump the rights of creditors to bleed their economies dry, adding that Iceland's crisis mirrored the even more serious plight of many developing countries.
Iceland's economy minister said today that an IMF aid programme and efforts to loosen capital controls were on hold until the country resolved its 'Icesave' impasse, with a risk of a prolonged economic slump.
Iceland has been caught in a political and economic storm, with doubts growing over its recovery and EU membership bid after the president vetoed a compensation deal to cover the Icesave bank collapse.
Jubilee argues that the Icesave dispute highlights the way that the international lending system tends to turn a deficit into a crisis by laying the full responsibility for debt on the debtor.
Together with the absence of insolvency procedures for sovereign states, this means that indebted countries have no protection from unpayable or unjust debts and can be forced to repay irresponsible loans, at high rates of interest, even if basic services to its citizens are neglected. In developing countries this has devastating effects.
Jubilee Debt Campaign is calling for a system of independent arbitration, claiming it is particularly wrong to punish Iceland’s population when government failure to properly regulate banks, including Icesave, was a British as well as Icelandic problem.
Nick Dearden, Director of Jubilee Debt Campaign said: “Iceland’s plight is real evidence of the problem at the heart of the global banking system – a problem that is causing poverty around the world. Iceland has only two choices: to pay its creditors on whatever terms they demand, or to default and see its economy sent into [a] tail spin by unaccountable economic institutions.
“This same no-win decision has faced many developing countries for decades. The problem is that countries are not accorded the same protection as individuals or companies when they take out a loan. But the impact is felt by the poorest in society, through cuts in basic service provision.
“The economic crisis is a crisis of an unregulated, irresponsible financial sector. The British government must take its share of the blame for that – particularly its failure to protect British savers by failing to adequately regulate the activities of Icesave and many other banks. Instead they have decided to make the ordinary people of Iceland bear sole responsibility for the faults of the bankers.”
The Campaign is proposing an international Debt Tribunal which would enshrine a government’s primary responsibility to meet the needs of its people.
The institution would exist in a neutral space, like the United Nations, where an independent arbitrator could, after hearing from the parties and civil society groups, prevent creditors from claiming money from a country which could not afford it, or paying money for a loan deemed illegitimate.
It is believed that such a system would provide an incentive for responsible lending and democratic borrowing. Both sides would take responsibility for the impacts of lending.