Global Policy Forum

Scientists demand state insolvency mechanism

erlassjahr_logo_In an open letter 78 scientists from 22 countries urge political decision makers to establish an insolvency procedure for indebted states. In the appeal they denounce political inactivity in the face of emerging and ongoing crises and the refusal of decision makers to learn from past mistakes. If not implemented, the world would have to pay a high price in the form of an increasing social and economic divide between rich and poor as well as unnecessarily high losses for investors, according to the signatories. Debt crises are by no means unique events, but regularly occurring phenomena. Nevertheless, at no time comprehensive solutions have been developed. In order to avoid continuation of this vicious circle the signatories demand the establishment of a reliable, transparent and rules based mechanism for state insolvency under the auspices of an independent institution that is neither debtor nor creditor.

July 23, 2014 | erlassjahr

Scientists demand state insolvency mechanism


The sovereign debt crisis in the Eurozone has demonstrated again, what academic experts and civil society movements have been claiming since the outbreak of the so called "Third World Debt Crisis" in the early 1980s: Sovereign debtors can - and in fact do - go bankrupt. Debt management schemes, however, which are driven by creditors in their own interest are unable to acknowledge this historical fact. Their reliance on the assumption that sovereigns will always be able to pay up - and that in the unexpected case of failure the crisis should be financed rather than solved - has led to protracted crises, which ultimately have been costly for everybody: debtors have suffered, and good-faith investors have incurred losses way beyond the inevitable. Delayed haircuts are always more expensive than timely ones.

Throughout the crises of the last thirty years leading academics have therefore suggested fundamental changes in the way, sovereign crises are being treated. They have joined UN bodies such as UNCTAD and the World Conference on the Financial Crisis and civil society movements, such as Jubilee in demanding a fair and transparent debt workout mechanism, based on the fundamental principles of the rule of law.

Under the impression of the Eurozone crisis and its fall-out in other parts of the world, academics have united in the Call for a Sovereign Debt Workout Mechanism, in order to make experts' voices heard, when political decisions are being taken.Thus, the purpose of the academics' call is twofold:

  • to influence decisions towards a rule-of-law based reform of global sovereign debt management through expertise in the fields of economics, law, political science and ethics,
  • to serve as a rallying point for academic work in the field of sovereign debt management, facilitate academic exchange, inter-actions with civil society movements and with inter-governmental bodies.

The initial signatories and want to encourage academics to support and sign the call. In 2014, the academics call will be given to all the governments from the countries of the signatories with the demand to support the creation of a fair sovereign debt workout. The call will also be published in different national and international media.


Academics call for the creation of a sovereign debt workout mechanism

The best moment to plant a tree is twenty years ago. The second best is now

As academics, who have been analysing sovereign debt problems for decades, we are deeply disappointed by political inaction in the face of emerging as well as on-going crises and by the failure of decision makers to learn from past mistakes. Proposals for a sovereign debt workout mechanism have been around for more than a century, with renewed emphasis since the beginning of the "third world debt crisis" in 1982. Throughout this history governments told us it was not the right moment for a reform, when the world was in the middle of a sovereign debt crisis. And again they told us it was not the right moment for a reform, when the world economy was in an upswing and debt indicators showed improvements, because there would be no sovereign debt crisis ever again. We fear that this cycle of debt crises will continue. If it does, the world will pay a high price for it in terms of further social and economic polarization through adjustment matters and moreover unnecessarily high losses to investors, which are the unavoidable consequence of a delayed insolvency filing. We therefore recall what has been or could have been learned from sovereign insolvencies worldwide at least since the end of WW II:

  • Sovereign debt crises are not singular events. Experience as well as economic common sense tell us that they are as old as statehood and bound to stay with us. No sovereign debt crisis will ever be the last one in history.
  • The delay of crisis resolution has been the rule rather than the exception from the "third world debt crisis" in the 1980s on to the Eurozone crisis. Regularly the majority of the people as well as bona-fide investors have to pay the price.
  • Any approach to properly deal with this recurrent phenomenon needs to be based on the existence of a reliable and transparent debt workout mechanism and on procedural justice.
  • In sovereign debt management procedural justice and the prevalence of the rule of law are prerequisites for efficiency. Any such mechanism, which would serve to protect fundamental rights of the vulnerable population in indebted countries needs impartiality in decision making and in the assessment of the need for debt relief. And it needs to replace the multitude of negotiations with a single comprehensive process.

A broad range of proposals to this end has been made since the re-organization of the global economy in Bretton Woods: from ad-hoc arbitration mechanisms heralded by academic colleagues as well as NGOs to the statutory mechanisms, one even elaborated and propagated by the IMF. They have been abandoned or neglected for no other reason than lack of political support. We therefore call upon decision makers to create a reliable, rule-of-law-based mechanism for sovereign insolvency under the auspices of an institution which is neither debtor nor creditor. We offer our support in the designing of such a mechanism.

Initial Signatories

1. Ross Buckley (University of New South Wales, Sydney, Australia)
2. Jayati Ghosh (Center for Economic Studies at the Jawaharlal Nehru University, New Delhi, India)
3. Heiner Flassbeck (Director of Flassbeck-Economics, Wolfersweiler, Germany)
4. Barry J. Herman (The New School, New York, USA)
5. José-Antonio Ocampo (Columbia University, New York, USA)
6. Kunibert Raffer (University of Vienna, Austria)
7. Christoph G. Paulus (Humboldt University, Berlin, Germany)
8. Celine Tan (Warwick University, UK)
9. Yvonne Wong (University of New South Wales, Sydney, Australia)
10. Michael Waibel (Cambridge University, UK)
11. Alberto Acosta (Facultad Latinoamericana de Ciencas Sociales (FLACSO), Quito, Ecuador)

New signatories

Dr. Najib Karim, Hamburg, Germany

Dr. Christoph Schäfer, Kiel, Germany

Dr. Jonas Wolff, Peace Research Institute, Frankfurt am Main, Germany

Prof. Tobias Lenz, Universität Göttingen, GIGA Hamburg, Germany

Dr. Aram Ziai, Universität Kassel, Germany

Prof. Dr. Franz Segbers, Sozialethik Universität Marburg, Germany

Dr. Ralf Kirstan, Rinteln, Germany

Dr. Peter Udo Schröder, Finanzökonom, Hamburg, Germany

Dr. Bernhard Gunter, American University, Washington, USA

Prof. Pramod Junankar, University of New South Wales, Sydney, Australia

Prof. Anis Chowdhury, University of Western Sydney, Sydney, Australia

Dr. Dilli Raj Khanal, Institute for Development Policy Research and Tribhuvan University, Kathmandu, Nepal

Prof. Des Gasper, Institute of Social Studies, Erasmus University, The Hague, Netherlands

Dr. Adam Elhiraika, United Nations Economic Commission for Africa, Addis Ababa, Ethiopia

Dr. Jeff Powell, War on Want, London, United Kingdom

Dr. Oscar Ugarteche, Instituto de Investigaciones Económicas, Universidad Nacional Autónoma, Mexico

Dr. Eric Helleiner, University of Waterloo, Waterloo, Canada

Prof. Sir Richard Jolly, Institute of Development Studies, University of Sussex, Brighton, United Kingdom

Prof. Gerry Helleiner, University of Toronto, Toronto, Canada

Dr. Marc Herkenrath, University of Zurich, Zurich, Switzerland

Prof. Martin Edwards, Seton Hall University, School of Diplomacy, USA

Dr. Alan Cibils, Universidad Nacional de General Sarmiento, Buenos Aires, Argentina

Prof. Ruth Rama, National Research Council of Spain, Madrid, Spain

Prof. Josefa Francisco, Miriam College, International Studies, Philippines

Dr. Jo Marie Griesgraber, New Rules for Global Finance, Washington, USA

Prof. Gemma Adaba, Long Island University, Brooklyn, USA

Prof. John Weeks, University of London, School of Oriental and African Studies, London, United Kingdom

Prof. John Toye, International Development, Oxford University, United Kingdom

Prof. Tesa de Vela, Miriam College, Philippines

Prof. Tony Killick, United Kingdom

Dr. Samuel Immanuel Brugger Jakob, Universidad Autonoma de Queretaro, Mexico

Prof. Gita Sen, Indian Institute of Management Bangalore, Centre for Public Policy, Bangalore, India

Prof. Siri Gloppen, Universität Bergen, Norway

Prof. Dr. Rolph van der Hoeven, International Institute of Social Studies (ISS) at Erasmus University, The Hague, Netherlands

Prof. Ryan Silverio, Miriam College, Philippines

Prof. Francisco-Javier Braña, Universidad de Salamanca, Applied Economics, Salamanca, Spain

Prof. Ilene Grabel, University of Denver, Josef Korbel School of International Studies, Denver, USA

Dr. Chris Edwards, University of East Anglia, Norwich, United Kingdom

Prof. Louka T. Katseli, Economics, National and Kapoditrian University of Athens, Greece

Prof. Emilios Avgouleas, Law, University of Edinburgh, United Kingdom

Prof. Dr. A. G. Dijkstra, Governance and Global Development, Erasmus Universiteit Rotterdam, Netherlands

Prof. James Galbraith, Lyndon B. Johnson School of Public Affairs an der University of Texas at Austin, USA

Prof. John Langmore, Melbourne School of Government, Australia

Dr. Isabel Ortiz, Columbia University, Initiative for Policy Dialogue, New York, USA

John W. Sewell, Former President of the Overseas Development Council (ODC), Environmental Change and Security, Wilson Center, Washington DC, USA

Prof. Ray Bush, University of Leeds, United Kingdom

Prof. Danny Cassimon, University of Antwerp, Institute of development policy and management, Antwerp, Belgium

Prof. Rut Diamint, Universidad Torcuato di Tella, Political Science, Argentina

Dr. Huete Agustin, University of Salamanca, Education, Spain

Dr. Luna Edgar Ramiro, Political Science, Universidad del Rosario, Bogotá, Kolumbien

Prof. Barbara Fritz, Economics, Freie Universität Berlin, Germany

Dr. Kathrin Berensmann, German Institute for Development, Bonn, Germany

Prof. Hans-Juergen Bieling, Political Science, University of Tuebingen, Germany

Dr. Rodrigo Lopez-Pablos, Universidad Nacional de la Matanza, Argentina

Prof. Steven L. Schwarcz, Stanley A. Star Professor of Law & Business, Duke University School of Law, Durham, USA

Prof. Lena Dominelli, Social Sciences, Durham University, USA

Prof. Stephany Griffith-Jones, Columbia University, IPD, New York, USA

Steve Mandel, Dept of International Development, Birmingham University & Green Economic Institute, United Kingdom

Prof. Ingeborg Gabriel, Chairperson at the Institute for Social Ethics, Universität Wien, Vienna, Austria

Prof. Stephan Klasen, University of Goettingen, Germany

Dr. Rasigan Maharajh, Tshwane University of Technology, Institute for Economic Research on Innovation, Tshwane, South Africa

Dr. Lauren Phillips, International Relations, London School of Economics, United Kingdom

Dr. Erika Kraemer-Mbula, Institute for Economic Research on Innovation, Tshwane University of Technology, Tshwane, South Africa

Prof. Susanne Soederberg, Queen's University Canada

Dr. Andy Storey, School of Politics and International Relations, University College Dublin, Ireland

Prof. Markus Vogt, Social Ethics, University Munich, Germany



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