United Nations Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights, Dr Cephas Lumina Mission to Argentina, 18-29 November 2013


Buenos Aires, 29 November 2013

Representatives of the media, ladies and gentlemen,

I am pleased to have this opportunity to address you today at the conclusion of my official fact-finding visit to Argentina which I conducted from 18 November at the invitation of the Government.

The main purpose of my visit was to assess the impact of the country’s external debt burden and the restructuring of the debt on the capacity of the Government to realize all human rights, particularly economic, social and cultural rights  and the right to development. As you may be aware, Argentina is currently facing litigation by “vulture funds” in New York. I have therefore devoted some attention to the broader implications of this issue.

I have had very insightful meetings with senior Government officials, the Vice-President of the Supreme Court, the National Ombudsman, as well as representatives of the Second Federal Court  and the Central Bank of the Republic of Argentina. In addition, I had meetings with representatives of the World Bank, the Inter-American Development Bank, the United Nations Country Team, civil society and academia.

Last week, I visited the Museum on External Debt in the Faculty of Economic Sciences at the University of Buenos Aires and this week, I visited Cordoba and Florencio Varela, where I met with representatives of civil society organizations and academia.

Regrettably, I did not have occasion to meet the committees of Congress with responsibility for social and economic affairs as I had requested. Parliament has an important legislative and oversight role in relation to budgetary issues and public debt management. As such, its insights are critical for a full assessment of the situation.

I will present a full report containing my findings and recommendations to the Human Rights Council in March 2014.  However, I would like to share with you my preliminary findings and recommendations.

Argentina’s human rights obligations

The 1994 constitutional amendments explicitly gave constitutional status to several international human rights treaties, including the International Covenant on Economic, Social and Cultural Rights (ICESCR). These treaties enjoy legal supremacy over any statute, decree, judicial decision or other international agreement. In terms of Article 2 of the ICESCR, Argentina must utilize “the maximum of its available resources” to ensure the full realization of the rights enshrined in the Covenant, including the rights to food, health, education, social security and work. The implication of this is that the State 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. At the very least, the State must ensure the satisfaction of minimum essential levels of each economic, social and cultural right.

In this context, I would also like to mention the United Nations Guiding Principles on Foreign Debt and Human Rights (A/HRC/20/23) which I developed and were endorsed by the Human Rights Council in June 2012.  The Principles underscore the primacy of human rights in relation to lending and borrowing decisions of States. Thus, they require that all States should pursue effective policies and measures aimed at establishing the conditions for ensuring the full realization of all human rights, taking into consideration the potentially negative impact of external debt servicing and the implementation of related economic reform policies.

I wish to commend the Government for the policies it has adopted in an effort to improve the well-being of the people of Argentina and I urge it to intensify its efforts in this regard by ensuring, inter alia, that its policies in the area of foreign debt are informed by the UN Guiding Principles as well as the State’s obligations as laid out in the Constitution and the international human rights treaties ratified by Argentina.

There are currently several World Bank-funded programmes in the country and a new three-year “country partnership strategy” is about to be approved. However, the concern has been expressed to me that some of these programmes may infringe human rights since the Bank does not take these rights into account when designing its lending policies. An example in this regard is the Universal Child Allowance which was initially financed through a US$450 million loan. It has been asserted that the eligibility criteria under this cash transfer programme make distinctions between workers in the formal and informal sectors, which may infringe the constitutional right to equality. The Government has indicated that these “distinctions” are designed to provide an incentive to those who are in informal employment or are unemployed to ensure that their children attend school or receive primary health care.

Nevertheless, it is important to point out that the UN Guiding Principles also emphasize that international financial institutions (such as the World Bank) and private corporations have an obligation to respect human rights. This implies that the Bank has a duty to refrain from formulating, adopting, funding and implementing policies and programmes which directly or indirectly threaten the enjoyment of human rights.

I commend the Supreme Court for the important role it has played in protecting social and economic rights in several cases. These cases have, inter alia, ensured access to drugs for all those infected with HIV, upheld the right to food, and struck down public sector wage cuts imposed in the aftermath of the debt crisis.

The debt crisis and its aftermath

Argentina’s debt problem has a long history that does not bear full repetition here. However, much of the debt which the country is paying was incurred in questionable circumstances, particularly during military rule in the 1970s and 1980s. During this period, banks, international financial institutions and other countries continued to lend to Argentina, funding not only infrastructure projects, but indirectly supporting an illegitimate government engaged in the repression and the disappearance of its opponents. Needless to mention, the country’s debt grew exponentially. There are therefore questions relating to the legitimacy of the debt incurred during the military dictatorship that need to be fully examined.

During the period 1989 to 1999, the debt increased by 123 per cent while interest payments on the debt rose by 253 per cent. It must be pointed out that at that time the country was constrained to implement strict economic adjustments that entailed privatisation, trade and financial liberalisation and pegging the peso to the US dollar by law, on a one-to-one basis. While the hope was that foreign capital inflows would stimulate economic growth and general welfare, the results were disastrous. The country’s debt rose while poverty and inequality increased.

The debt restructurings in 2005 and 2010 have enabled the country to reduce its debt. According to official figures by the Ministry of Economy, as of 30 June 2013, the total public debt stood at US$196 billion while the total external debt was approximately US$135 billion. Approximately US$25 billion is owed to multilateral financial institutions such as the World Bank and the Inter-American Development Bank and Paris Club creditors. However, these figures do not include bonds held by creditors that did not participate in the 2005 and 2010 restructurings, which are estimated at US$11.5 billion.

Nevertheless, debt service still comes at a high cost to the country. The exclusion of the country from the international financial markets has constrained the Government to draw on the country’s foreign reserves to service debt. These reserves have fallen sharply from about US$50 billion to less than US$33 billion. If this trend continues, the Government may face difficulties in honouring its debts.

According to information I have received, the 2014 national budget foresees that 9.0 per cent of the entire budget (up from 6.4 per cent in 2013), will be devoted to debt service alone, exceeding funds allocated for the national education sector (5.4 per cent) or health care (1.9 per cent). It must, however, be said that since education and health care are largely within the competence of the provinces, the national budget may not give a full picture of actual government spending on health care and education.

Impact on human rights

It is generally acknowledged that the debt crisis of the early 2000s has had a severe impact on a broad range of human rights, including the rights to work, social security, health and education. However, the debt restructurings have provided the Government with larger fiscal space for social investment. In addition, the Government has, since 2003, implemented a number of policies to promote economic growth with social inclusion. Thus, for example, as a result of proactive job creation policies, the official unemployment rate fell to below 10 percent by end of 2006 and is, according to official estimates, currently at around 6.8 percent. The increase of formal employment and a simplified regime for small taxpayers (monotributo) has ensured that more and more workers now have access to social security. Informal unregistered employment was reduced from 43.4 percent in 2003 to 33.3 per cent in 2011, reaching the levels of the mid-1990s.

The additional fiscal space has also allowed the Government to expand its non-contributory social protection schemes in a significant way. This has included the introduction of a non-contributory minimum pension in 2005, increasing overall pension coverage for elderly people from 67 percent (before 2005) to about 96 per cent.  In November 2009, a Universal Child Allowance for all children under 18 years of age was introduced. This allowance benefits children whose parents are either unemployed or work in the informal sector and do not otherwise contribute to social security schemes. In April 2013, 3.28 million children received this benefit.

All these efforts are commendable, but many challenges remain, particularly with regard to addressing poverty and ensuring social inclusion. While it is generally acknowledged that poverty has been significantly reduced since the 2001/2002 debt crisis, in recent years official statistics related to poverty and consumer price indices have generated much debate. INDEC Statistics show that the poverty and extreme poverty levels have constantly declined since 2003 to about 4.7 and 1.4 percent, respectively (according to the last available data). However, independent research institutions such as the Instituto de Investigacion Social, Economica y Politica Ciudadana (ISEPCi) estimate that nearly a quarter of the Argentinian population (24.05 per cent) lives in poverty, and that 5.6 per cent face extreme poverty. Similar statistics have been presented by the Observatory on Social Debt at the Economic Faculty of the Catholic University of Buenos Aires and other research institutes.

It is not my intention to draw conclusions on these divergent statistics. Rather, I wish to underscore the point that the fight against poverty is a long term process that requires much investment and that despite much progress, challenges remain, with a significant portion of the population still facing extreme poverty, although its actual size may be contested.

In particular, I consider that the Government should enhance its efforts to evaluate the impact of its social policies from a human rights viewpoint. For example, there is a need to study whether existing measures and the level of existing benefits are sufficient to meet the essential minimum levels of social rights enumerated in international human rights covenants, and whether such level is sufficient to move the impoverished out of poverty.

In the area of healthcare, the public health system provides universal access. However, depending on province, region and location there are discrepancies in the quality and accessibility of healthcare. At around 10 per cent of GDP, health expenditure is higher than that of other Latin American countries, but resources are unevenly distributed. Around 8 per cent of GDP of health expenditure serves about 64 per cent of the population which has either private health insurance or is covered by social-security based health insurance, while the remaining 36 percent has to rely exclusively on public sector health services which receive only 2 per cent of GDP.

The Special Rapporteur on the right to adequate housing visited Argentina in April 2011. Many of the challenges outlined in her report (A/HRC/19/53/Add.1) remain. According to information received, only about one per cent of the national budget is devoted to addressing problems relating to housing. This contrasts strongly with the 9 per cent of the national budget expected to be absorbed by debt service payments in 2014.

The need for a public debt audit

The Guiding Principles on Foreign Debt and Human Rights call for every borrower State to conduct transparent and participatory periodic audits of their debt portfolios. Such audits 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.

As mentioned earlier, concerns have 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. Indeed, on 13 July 2000, the Second Federal Court found that there were elements of criminality and other irregularities linked to the debt accumulated during the military dictatorship (see Olmos, Alejandro S/Denuncia, Case No. 14.467). Since the statute of limitations precluded the conviction of any accused person, the Court decided to refer its findings to the Congress for appropriate action that would assist the country address its debt problem. To my knowledge, the Congress has not addressed the issues identified in the case. And, as I mentioned earlier, I was not able to meet members of the Congress to discuss this issue.

This is regrettable given the obvious challenges which the debt problem has posed for the country. It is critical that any strategy to address the country’s debt problem in a decisive manner should include a transparent and participatory audit to ascertain the legitimacy or otherwise of the debt. Under international law, debts assumed by unrepresentative regimes and not used for the benefit of the people are odious and not repayable. In this regard, I call upon the country’s international lenders to support a public, transparent and participatory debt audit and to unconditionally cancel any claims they may have should the audit find these to be odious.

Vulture fund litigation

As I mentioned earlier, Argentina is currently facing litigation by “vulture funds” in the USA. It is not my intention to discuss the merits of the lawsuit but I wish to briefly share with you the concerns that I have about this litigation. First, while I accept that a secondary market for debt is an important feature of sovereign borrowing and lending, I do not believe that vulture funds have any useful role to play in the market. Conversely, these greedy entities prey on both other creditors and on the indebted countries. Significantly, holdout behaviour by vulture funds makes restructuring more difficult and uncertain. The resulting uncertainty and being forced to repay individual creditors far more than what has been agreed with other creditors harms indebted countries.

Second, the implications of the New York Second Circuit Court in NML Capital Ltd v Argentina extend 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. 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.

Finally, the “vulture fund” litigation has the potential to undermine the ability of the Argentine State to fulfil its human rights commitments and to implement its national development agenda.  It should be noted that these funds, which purchased Argentinian bonds on the secondary market at a significant discount and are now pursuing repayments of amounts that border on the unethical, contend that Argentina is able to pay them. They conveniently forget the primary obligation of the State to establish the conditions in which its people can live in dignity.

Argentina has made important progress in improving the social condition of its people. Vulture funds and irresponsible financing decisions must not be allowed to diminish this progress. I therefore firmly support the position of the Government not to yield to unreasonable demands by some vulture funds that continue to litigate against the country in foreign jurisdictions.

In this regard, I reiterate my call on 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. Such legislation will not affect legitimate investors in the secondary debt market but will surely go a long way in addressing the predatory behavior of vulture funds.

In addition, the international community should intensify its efforts to establish an international rules-based framework for the impartial, efficient and rights-sensitive resolution of sovereign debt problems.

In conclusion, I look forward to continuing the constructive dialogue with the government established during my visit as I prepare my report to the Council.

 Thank you.