Money matters for development. How to make financing more responsible and ultimately a more effective driver of development has been a key concern for the development community in recent years. In 2009, Eurodad released the first Responsible Finance Charter, outlining a comprehensive set of principles on how to regulate international finance better in order maximize its benefits while minimizing the harm it could do. This was comprehensively updated in 2011 to include private as well as public finance. Last year, the United Nations under the leadership of UNCTAD released the Principles on Promoting Sovereign Lending and Borrowing which are the first comprehensive set of principles on the subject from official side.
This briefing paper analyses the UNCTAD Principles and compares them with the Eurodad Responsible Finance Charter. It finds that the UNCTAD Principles have started to fill the gaping hole in the international financial architecture caused by the lack of institutions to promote responsible financing. Among their many benefits is that the UNCTAD Principles make clear that state officers dealing with debt – borrowing or lending – are agents of citizens and obliged to act as such, in an accountable and transparent manner. They also promote the principle of co-responsibility of both parties – borrowers and lenders - for prevention and solution of debt crises that can result from irresponsible lending. As such, the UNCTAD principles stand out positively when compared to the debt management work done by creditor institutions such as the World Bank and the IMF, who tend to put the blame for wrongdoings on the borrower side, and make their populations pay the price for adjustments.
We also find, however, that limited political risk appetite has constrained the Principles and reduced their value. Compared to Eurodad’s Charter, the scope of the UNCTAD Principles is narrow as they cover just sovereign loans, neglecting private finance. Significant gaps remain, for instance in the area of effective debt work-out mechanisms. Implementation will be a challenge as so far neither hard nor soft accountability mechanism exist that would drive their implementation. Just 13 of the 193 UN Member States have so far formally endorsed the Principles, and even their actual compliance reamins unclear because it is not yet monitored. While the UNCTAD Principles signify an important step forward on the path to responsible financing, much work remains to be done to reach the goal.