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The Ravages Of Earth: Natural And Man-Made

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The Ravages Of Earth: Natural And Man-Made
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Did you know that women represent just 38 per cent of all ocean scientists? A women-led community organisation in the Seaflower UNESCO Biosphere Reserve in the Caribbean, is working to restore some of the most important marine ecosystems in the world and paving the way for bigger women’s representation in ocean science.

Known as ‘the island in the Sea of the Seven Colors’, San Andres is the biggest island in the Seaflower, containing part of one of the richest coral reefs in the world

San Andres itself is a coral island, meaning it was geologically built by organic material derived from skeletons of corals and numerous other animals and plants associated with these colonial organisms. These types of islands are low land, being mostly only a few metres above sea level, surrounded by coconut palms and white coral sand beaches.

It is no coincidence that this Colombian island is a world-class scuba diving destination with crystal clear waters, and a tourist hub visited by over a million people each year.

But being so ‘in demand’ has a key downside: San Andres’ unique ecosystems and natural resources have been deeply impacted. This is something that biologist and professional diver Maria Fernanda Maya has witnessed first-hand.

A community protecting the ocean

“I have seen San Andres change in the past 20 years; the decrease of fish and coral cover has been quite high. Just like the rest of the world, we have experienced a very large demographic explosion, and the pressure on our resources is increasing,” she tells UN News.

Ms. Maya has been diving and working most of her life to protect the treasures of the Seaflower Biosphere Reserve. She is the director of Blue Indigo Foundation, a women-led community organization that works towards the sustainable development of the San Andres Archipelago, and the protection and restoration of its marine ecosystems.

She says she decided to create the foundation because she believes that the local community must lead the protection of its own resources.

“I have worked for many international and national-led environmental projects in the past, and what happens is that people come, do a timed project, and then leave. And then there is no way for the local community to continue it,” the biologist explains.

Ms. Maya works alongside scientific coordinator Mariana Gnecco, who is her partner in the foundation.

“I am an islander; I formed a relationship with the ocean before I was even born. I’ve always known I never want to be far from the sea,” she tells UN News.

Ms. Gnecco has been freediving since she was just 10 years old, and, like Ms. Maya, got her scuba certification before the age of 14 and later graduated from university as a biologist. She is now also pursuing her PhD.

Women in marine science

According to UNESCO, women engage in all aspects of ocean interaction, yet in many parts of the world, women’s contributions – both towards ocean-based livelihoods like fishing, and conservation efforts – are all but invisible as gender inequality persists in the marine industry as well as the field of ocean science.

In fact, women represent just 38 per cent of all ocean scientists and further, there is very little data or in-depth research on the issue of women’s representation in the field  

Both Ms. Maya and Ms. Gnecco can attest to this.

“Men are the ones usually leading marine science and when there are women in charge they are always doubted. Somehow, it’s good to have them as assistants, or in the laboratory, but when women lead the projects, I have always felt there is some kind of pushback.  When a woman speaks with passion ‘she is getting hysterical’; when a woman makes unconventional decisions, ‘she is crazy’, but when a man does it, it is because ‘he’s a leader’”, denounces Ms. Maya.

She says that because this has been an unwritten truth that women grapple with, she worked hard at the Foundation to create and nurture an atmosphere that is the opposite.

“We have been able to harmonize the work between women and men partners, recognizing, valuing and empowering the feminine forces, as well as what men have to offer,” Ms. Maya stresses.

“Our opinions, our expertise, and our knowledge have been overlooked for so many years that being able to lead a project like this now means a lot. It symbolizes a [a great deal] in terms of equality and inclusion.  Although we still have a long way to go because women in science are still undermined a lot of the time, I think we are on the right path to tackle that problem for good,” echoes Ms. Gnecco.

Saving the coral reefs

On the day the Blue Indigo biologists met with the UN News field reporting team, Ms. Maya and Ms. Gnecco braved a non-stop torrential downpour caused by a cold front in San Andres, a common occurrence during the Atlantic hurricane season.

That morning, we thought it might be impossible to report this story because the rain had turned the island’s streets into rivers, and some of the areas we needed to reach had been turned into mud pits.

“And they say women are scared to drive,” Ms. Maya said with a sly laugh when she picked us up on the way to one of the restoration sites they are working on as one of the local implementers of the nationwide project “One Million Corals for Colombia”, that aims to restore 200 hectares of reef across the country.

Earlier that morning, all diving on the island had been halted due to the weather, but conditions (at least on the water) did eventually improve, and authorities turned the red flag yellow.

That news sparked a mini celebration among a group of eager student divers who thought their day was ruined.

Meanwhile, the rest of us put on scuba gear and walked toward the shore in the (still) pouring rain.

“Once you’re underwater, you are going to forget about this grey day. You’ll see!” Ms. Maya said.

And she couldn’t have been more right. After taking the plunge from the rocky (and slippery) coral coast on the west side of the island, we experienced incredible calm beneath the waves.

The visibility was extremely good, and the biologists took us through some of the rope-type coral nurseries they were working on where Acropora coral fragments are growing. We also saw some of the already-transplanted coral within the stunning reef of San Andres.

Blue Indigo Foundation works closely with diving schools on the island, and they contribute to their restoration efforts. The NGO also teaches specialized courses in restoration for international divers several times a year.

“People come over to see our project and learn and they get engaged easier because then they ask us for the coral. ‘Oh, how’s my coral doing?  The one we planted on the reef, how’s it doing?’,” Mariana Gnecco explains, adding that when people see the organisms thriving, it helps to raise general awareness.

The corals within the Seaflower Biosphere Reserve have been declining since the 70s, fueled by the rise in the temperature and acidification of the water, caused by excessive carbon emissions and consequent climate change.

“Those are the global threats, but we also have some local threats that are harming the reef, for example, overfishing, bad tourism practices, boat collisions, pollution, and sewage disposal,” underscores Ms. Gnecco.

Raizal people’s efforts and sustainable tourism

By definition, UNESCO Biosphere Reserves are de facto centres for learning about sustainable development. They also provided an opportunity to examine up-close the changes and interactions between social and ecological systems, including the management of biodiversity.

“When a biosphere reserve is declared, it means that it is a special place, not just because of its biodiversity, but also because there’s a community that has a special connection with that biodiversity, a connection that’s been going for decades with a cultural and historical value,” Ms. Gnecco explains.

The Seaflower is very special, she adds, telling us that it comprises 10 per cent of the Caribbean Sea, 75 per cent of Colombia’s coral reefs and that it’s a hotspot for shark conservation.

“The local community – the Raizal people, that have been living here for generations – have learned how to relate to these ecosystems in a healthy and sustainable way. This is our way of living for both Raizal and other residents. We depend completely on this ecosystem and on its biodiversity, that’s why it’s important and special”, the biologist adds.

The Raizal are an Afro-Caribbean ethnic group living in the islands of San Andrés, Providencia and Santa Catalina off the Colombian Caribbean Coast. They are recognized by the Government as one of the Afro-Colombian ethnic groups.

They speak San Andrés-Providencia Creole, one of many English Creoles used in the Caribbean. 20 years ago, the Raizal represented over half of the island’s population. Today, the general population is nearly 80,000, but the Raizal make up about 40 per cent, due to a high migration influx from the mainland.

Raizal Marine Biologist and researcher Alfredo Abril-Howard also works at Blue Indigo foundation.

“Our culture is closely tied to the ocean. The fishermen are the first to notice changes in the coral – for example, they notice that healthy reefs attract more fish. They can describe a vivid picture of the way the reefs looked in the past…no one understands the importance of our reefs better than them,” he underscores.

The expert says that he believes there is a major socioeconomic issue in San Andres: other than tourism, there are very few ways for his people to make a living.

“Tourism keeps growing and most economic activities revolve around it. So, we need more fish because there are more tourists, so now we catch fish of any size affecting the ecosystem”, he says, emphasizing that better tourism management could generate better economic opportunities for locals while letting the reef flourish at the same time.

Mr. Abril-Howard explains that diving, if sustainably managed, can also have an impact on the ecosystem. It can also help to raise awareness about restoration efforts and at the same time give back to the reef.

“We need a change in the way we do our tourism. Restoring our reefs is important, but we also need to make visitors aware that it is there, and that it is not a rock, It is a living being and that they shouldn’t step on it. These are small things that can benefit the future coral cover. We also need to show people that there is more to this island than coming to party and get drunk, so they can learn something,” he says.

A job for ‘superheroes’

For Camilo Leche, also Raizal, coral restoration efforts are now a part of his life as a fisherman.

“I have been fishing for over 30 years. I remember seeing coral bleaching for the first time – you know when coral starts turning white – and thinking that it was because the coral was getting old, like we get white hairs. But now I understand it is because of climate change,” he told us just before going on his morning fishing expedition.

“Before I could see beautiful giant corals around here and it was so easy to find lobster and big fish, now we have to go further and further to find them”, he adds.

Mr. Leche says that he hopes that world leaders can put their ‘hands on their hearts and in their pockets’ to finance more restoration efforts such as the one undertaken by the Foundation, which he now helps.

“I have learned how to fragment corals, to put them in the ropes. We also go out to make the transplants. And those little pieces are now becoming so big and beautiful, when I see them, I feel so proud of it. I feel like a superhero”.

Swimming against the tide

San Andres is not only losing its coral reef cover and fish banks, but the island also faces coastal erosion and is vulnerable to sea level rise and extreme weather events such as hurricanes.

All these are destroying infrastructure and reducing the island’s beautiful beach cover. In some areas, locals say that before they could play a football game in places where only a meter of beach is now seen.

The ecosystems Blue Indigo works to restore are essential to protect the community during extreme weather events.

For example, Colombian scientists were able to prove how the mangrove protected San Andres during hurricanes Eta and Iota in 2020, among other ways by reducing wind speeds by over 60 km/h.

At the same time, coral reefs can reduce by nearly 95 per cent the height of the waves coming from the east of the Caribbean Sea, as well as reduce their strength during storms.

“We know our restoration efforts can’t bring back the coral reef in its totality, because it is such a complex ecosystem. But by growing certain species we can have a positive impact, bring back the fish and ignite these organisms’ natural capacity to restore themselves,” says Blue Indigo chief Maria Fernanda Maya.

For Mariana Gnecco, it is about aiding the reef to survive during a transformation of its environment happening due to climate change.

“What we need is a functional ecosystem. We are trying to at least give it a helping hand so it can adapt to climate change. The ecosystem is going to change, that’s going to happen, but if we help it will happen at least in a way that is not going to die completely”, she says.

Both the UN Decade for Ecosystem Restoration and the UN Decade of Ocean Science for Sustainable Development, both of which began in 2021 and will run until 2030, aim to find transformative ocean science solutions to guarantee a clean, productive and safe ocean, and to restore its marine ecosystems.

According to UNESCO, mainstreaming gender equality throughout the Ocean Science Decade will help ensure that, by 2030, women as much as men will be driving ocean science and management, helping to deliver the ocean we need for a prosperous, sustainable and environmentally secure future.

“The women that are involved in this are paving the path for all the women that are coming behind. Indeed, the future is problematic, and we are swimming against the current, but I think anything that we can do is better than doing nothing.”

That’s Mariana Gnecco’s message to us all.

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What is the State of the Indonesian Economy in 2024

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Imagine a nation with a rich past, abundant resources, and an unwavering drive to rise on the global stage—that’s Indonesia in 2024. As the largest economy in Southeast Asia, Indonesia is on a transformative journey, aiming to diversify its industries and redefine its future. From a legacy rooted in colonial trade to a modern economy embracing digital innovation, Indonesia’s story is one of resilience and reinvention. This year, Indonesia is focusing on balancing its traditional strengths in natural resources and manufacturing with booming sectors like digital technology and green energy.

In this article, we’ll take you through Indonesia’s economic evolution—from its early days under colonial rule to the rapid transformations post-independence. You’ll gain insight into the industries that drive today’s economy and discover the ambitious projects designed to position Indonesia as a powerhouse in the global market. Whether you’re a curious reader, investor, or simply looking to understand the heartbeat of Southeast Asia’s largest economy, this exploration of Indonesia’s growth will uncover both the challenges and promising paths ahead.

A Historical Overview of Indonesia’s Economy

Indonesia’s economic history dates back to the Dutch colonial period, during which the region served primarily as a source of raw materials for the colonial powers. The Dutch East India Company monopolized resources, exporting spices, tea, coffee, and later, oil, primarily for the benefit of the Dutch economy. Infrastructure developed in the colonial era largely supported this export-driven structure, with limited investments to foster local industry or diversify economic activities.

During World War II, the Japanese occupation further strained Indonesia’s economy, redirecting resources to support Japan’s war efforts. When Indonesia declared independence in 1945, it inherited an economy still structured around extraction and raw materials, with minimal industrial capacity. The path forward was challenging, as early leaders sought to gain control over resources and establish a foundation for economic autonomy.

Post-Independence Economic Transformation

The 1950s and 60s saw attempts to nationalize industries under Sukarno’s leadership, with a focus on self-sufficiency. However, these guided policies faced setbacks, including inflation, political unrest, and limited international trade relationships, which stunted growth.

Under Suharto’s New Order regime, Indonesia adopted an open economy, welcoming foreign investment and establishing policies to diversify its economic base. Benefiting from high global oil prices, Indonesia’s oil and gas sectors boomed, while manufacturing and textile industries gained ground, becoming significant contributors to GDP. This era saw rapid industrial growth, laying the foundation for the modern Indonesian economy.

The Asian Financial Crisis of 1997 brought severe economic hardship to Indonesia, resulting in reforms to stabilize its financial sector and reduce governmental control over businesses. With support from the International Monetary Fund (IMF), Indonesia stabilized its currency and restored investor confidence, setting the stage for a more resilient economic structure.

Indonesia’s Economic Landscape in 2024

Today, Indonesia has transformed into a diverse and vibrant economy with a well-established mix of natural resources, manufacturing, and a growing digital sector.

Indonesia’s 2024 GDP is primarily driven by sectors including agriculture, manufacturing, services, mining, and construction. Natural resources such as oil, gas, and coal remain central to the economy, while the manufacturing sector, especially in textiles, automotive, and electronics, contributes significantly to exports and employment.

  1. Natural Resources: Indonesia continues to be a major global producer of oil, gas, coal, and minerals. These resources form the backbone of its exports, though the government is actively seeking to diversify to reduce dependency on volatile commodity prices.
  2. Manufacturing: Indonesia’s manufacturing sector includes textiles, automotive, and electronics. This industry has been instrumental in driving employment and regional development, with both domestic and international markets fueling demand.
  3. Agriculture: The agricultural sector remains a significant part of Indonesia’s GDP, with commodities like palm oil, rubber, and coffee. Palm oil, in particular, is a key export, although it faces international scrutiny for its environmental impact.
  4. Services and Digital Economy: With high internet penetration and a young demographic, Indonesia’s digital economy is growing rapidly. E-commerce, fintech, and digital services are expanding, attracting investments, and generating new jobs, with the sector expected to continue its upward trajectory.
  5. Tourism: Efforts to expand tourism include promoting cultural tourism, eco-tourism, and Muslim-friendly travel. This sector provides vital foreign exchange and employment opportunities, though challenges such as infrastructure and environmental sustainability remain.
Major Economic Challenges
  1. Infrastructure Deficit
    Indonesia’s infrastructure has improved in recent years, with projects like the Trans-Sumatra Highway and regional connectivity initiatives. However, rural and remote areas still lack sufficient infrastructure, hindering inclusive growth.
  2. Income Inequality and Poverty
    While Indonesia’s economy has grown, wealth distribution remains uneven, with notable disparities between rural and urban areas. Addressing poverty and supporting micro-entrepreneurs are crucial steps to achieve equitable economic growth.
  3. Environmental Concerns
    Deforestation and pollution from industries such as palm oil production challenge Indonesia’s sustainability goals. Balancing economic growth with environmental protection is a central priority, as global scrutiny intensifies around environmental practices.
  4. Dependency on Natural Resources
    Heavy reliance on commodity exports makes Indonesia vulnerable to global price fluctuations. Government initiatives to diversify and reduce this dependency are ongoing but require strategic focus and innovation.
Future Projects and Strategic Goals

Indonesia’s Vision 2045, an ambitious development agenda, aims to position the nation as a high-income country by its centennial anniversary. The agenda emphasizes industrialization, digital economy growth, and human capital development, targeting a well-rounded, sustainable growth model.

One of the most talked-about projects is the relocation of Indonesia’s capital from Jakarta to Nusantara in Kalimantan. This move aims to alleviate congestion in Jakarta and promote regional development by distributing economic activities more evenly. The new capital is envisioned to be an environmentally friendly, smart city, fostering sustainable growth.

Indonesia has committed to shifting toward renewable energy, with projects in solar, wind, and geothermal power. The goal is to reduce dependency on coal and achieve a greener energy mix by 2060, positioning Indonesia as a leader in renewable energy in Southeast Asia.

The government recognizes the potential of the digital economy and is actively supporting the expansion of fintech, digital services, and creative industries. This sector is expected to be a major contributor to economic growth, fueled by high demand for innovation, particularly among Indonesia’s young population.

In 2024, Indonesia stands as a growing economic power in Southeast Asia, reflecting a blend of historical influences, industrial growth, and forward-looking strategies. While traditional sectors like natural resources and agriculture continue to play vital roles, Indonesia’s efforts to diversify into digital and renewable sectors signify its adaptability and ambition. The state of the Indonesian economy in 2024 is both promising and challenging, with projects like Nusantara, the Vision 2045 agenda, and renewable energy transitions highlighting its readiness for a sustainable, inclusive, and prosperous future.


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Lifting the Bottom Billion: Will It Work This Time?

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Imagine being part of a billion people stuck in a cycle of extreme poverty—unable to break free due to war, corruption, lack of education, and isolation from global markets. These individuals make up what economist Paul Collier famously termed the “Bottom Billion.” Despite countless international efforts to address their struggles, many remain trapped in some of the most challenging conditions on earth, particularly in sub-Saharan Africa. With new strategies and technologies emerging, the big question is: Will it work this time? In this article, we’ll dive into the latest global initiatives and the hurdles still standing in the way of lifting the Bottom Billion out of poverty once and for all.

Understanding the Bottom Billion Crisis

For decades, poverty reduction efforts have centered on providing aid, improving infrastructure, and addressing public health issues. However, the situation for the Bottom Billion is complex and often resistant to traditional development strategies. According to Collier, these individuals are caught in one or more of four traps: conflict, natural resource dependence, landlocked countries with bad neighbors, and poor governance. These traps create cyclical poverty that is difficult to escape.

Recent data shows that while global poverty rates have decreased—thanks to economic growth in places like China and India—the situation for the Bottom Billion remains unchanged in many regions. Sub-Saharan Africa, for instance, continues to struggle with high poverty rates, despite decades of international aid. The challenge is not just about money; it’s about addressing the root causes that keep these populations poor.

Current Global Efforts: What’s Being Done?

Several initiatives have been put in place to address the unique challenges faced by the Bottom Billion. These include:

1. Sustainable Development Goals (SDGs)

The United Nations’ Sustainable Development Goals (SDGs) aim to end poverty in all its forms by 2030. Goal 1 specifically targets the eradication of extreme poverty, focusing on providing social safety nets, access to basic services, and job creation. While the SDGs offer a comprehensive approach, progress has been uneven, particularly in conflict-affected regions where governance and infrastructure are weak.

2. International Aid and Debt Relief

Foreign aid and debt relief programs have been crucial in offering immediate assistance to impoverished nations. In 2020, the International Monetary Fund (IMF) and World Bank launched initiatives to alleviate debt for the world’s poorest countries, especially in the wake of the COVID-19 pandemic. The IMF’s Debt Service Suspension Initiative (DSSI) has temporarily freed up resources that these countries can use for critical healthcare and social services. But critics argue that aid, while necessary, often doesn’t address the systemic issues—like governance and corruption—that perpetuate poverty.

3. Microfinance and Social Entrepreneurship

Microfinance has been a popular tool for lifting people out of poverty. By providing small loans to individuals, particularly women, microfinance initiatives aim to stimulate local businesses and empower communities. Organizations like Grameen Bank and Kiva have made significant strides, but scaling these efforts to reach the Bottom Billion remains a challenge. Social entrepreneurship—businesses that focus on generating social impact rather than profit—has also emerged as a promising solution, but its effectiveness is still debated.

The Role of Technology in Poverty Alleviation

One of the most promising developments in the fight against poverty is the role of technology. In recent years, digital tools have shown the potential to bridge gaps in education, healthcare, and financial services.

1. Mobile Banking and Digital Inclusion

Mobile banking, particularly in countries like Kenya with platforms like M-Pesa, has revolutionized financial access for the poor. These platforms allow users to transfer money, save, and even access loans without needing a traditional bank account. For the Bottom Billion, many of whom live in rural or underserved areas, mobile banking provides a lifeline for economic participation. However, challenges around digital literacy and infrastructure still need to be addressed.

2. Online Education and E-Learning Platforms

Education is another area where technology can make a transformative impact. The rise of e-learning platforms offers the opportunity to bring quality education to even the most remote regions. Projects like Khan Academy and Coursera have made strides in offering free educational content to people worldwide, but scaling this in regions where internet access is scarce or expensive remains a hurdle.

3. Telemedicine and Healthcare Access

Telemedicine has the potential to bridge gaps in healthcare, particularly in areas where access to hospitals or doctors is limited. With the help of mobile technology, remote consultations and diagnostics are becoming more common in developing countries. In the context of the COVID-19 pandemic, telemedicine has become a critical tool, allowing healthcare workers to reach vulnerable populations. However, expanding this service to the Bottom Billion will require investment in both digital infrastructure and healthcare systems.

One of the biggest barriers to lifting the Bottom Billion out of poverty is poor governance. Corruption, weak institutions, and lack of transparency make it difficult for aid and development programs to reach those who need them most. Transparency International’s Corruption Perceptions Index consistently shows that the most impoverished countries are also among the most corrupt.

In countries with poor governance, even well-meaning efforts can fail. Aid money often doesn’t reach its intended recipients, infrastructure projects stall, and political instability exacerbates existing problems. Addressing governance issues is critical to making any poverty alleviation program successful.

So, will it work this time? The answer lies in a multifaceted approach that goes beyond just financial aid. Here are a few key elements that must be addressed for any hope of success:

  1. Improving Governance: Without addressing corruption and weak institutions, any efforts will be undermined. Initiatives that promote transparency, accountability, and democratic governance will be crucial.
  2. Inclusive Economic Growth: Economic development must reach the most marginalized groups, particularly women, rural communities, and those living in conflict zones. Programs that focus on building local economies and creating jobs will be vital.
  3. Leveraging Technology: Digital tools offer immense potential, but they must be accessible to all. Expanding internet access and digital literacy will be key in enabling the Bottom Billion to participate in the global economy.
  4. Local Solutions for Local Problems: Global strategies must be adapted to local contexts. What works in Southeast Asia may not work in sub-Saharan Africa. Engaging local communities in the decision-making process is essential for sustainable progress.

Lifting the Bottom Billion is one of the most daunting challenges of our time. While the task is immense, it is not impossible. By focusing on good governance, inclusive growth, and technological innovation, the global community has a chance to make meaningful progress in reducing extreme poverty. Will it work this time? Only if we approach the problem with a comprehensive, targeted, and sustainable strategy. The stakes are high, but the rewards—improving the lives of a billion people—are worth every effort.


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Easing Africa’s Debt Burdens: a Fresh Approach, Based on an Old Idea

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In his address to the 79th session of the UN general assembly this week, South African president Cyril Ramaphosa described debt as “a millstone around the neck of developing countries”. Three legal and economic scholars set out the African debt problem and what must happen if African countries are to get out of what Ramaphosa described as “a quicksand of debt”.

The statistics are stark: 54 governments, of which 25 are African, are spending at least 10% of their revenues on servicing their debts; 48 countries, home to 3.3 billion people, are spending more on debt service than on health or education. Among them, 23 African countries are spending more on debt service than on health or education. While the international community stands by, these countries are servicing their debts and defaulting on their development goals. The Group of 20’s current approach for dealing with the debts of low income countries is the Common Framework.

It requires the debtor to first discuss its problems with the International Monetary Fund (IMF) and obtain its assessment of how much debt relief it needs. Then it must negotiate with its official creditors – international organisations, governments and government agencies – over how much debt relief they will provide. Only then can the debtor reach an agreement – on comparable terms to the official creditors – with its commercial creditors. Unfortunately, this process has been sub-optimal.

One reason is that it works too slowly to meet the urgent needs of distressed borrowers. As a result, it condemns debtor countries to financial limbo. The resulting uncertainty is not in anyone’s interest. For example, Zambia has been working through the G20’s cumbersome process for more than three and a half years and has not yet finalised agreements with all its creditors.  The need for a new approach is overwhelmingly evident. Although the current crisis has not yet become the “systemic” threat it was in the 1980s when multiple countries defaulted on their debt, it is a “silent” sovereign debt crisis.

We propose a two-part approach that would improve the situation of sovereign debtors and their creditors. This proposal is based on the lessons we have learned from our work on the legal and economic aspects of developing country debt, particularly African debt.

First, we suggest that official creditors and the IMF create a strategic buyer of “last resort” that can purchase the bonds of debt distressed countries and refinance them on better terms.

Second, we recommend that all parties involved in sovereign debt restructurings adopt a set of principles that they can use to guide the debtor and its creditors in reaching an optimal agreement and monitoring its implementation.

The current approach fails to deal effectively and fairly with both the concerns of the creditors and all the debtor’s legal obligations and responsibilities. Our proposed solution would offer debtors debt relief that does not undermine their ability to meet their other legal obligations and responsibilities, while also accommodating private creditors’ preference for cash payments.

Our proposal is not risk-free. And buybacks are not appropriate for all debtors. Nevertheless it offers a principled and feasible approach to dealing with a silent debt crisis that threatens to undermine international efforts to address global challenges such as climate, poverty and inequality.

It uses the IMF’s existing resources to meet both the bondholders’ preferences for immediate cash and the developing countries’ need to reduce their debt burdens in a transparent and principled way. It also helps the international community avoid a widespread default on debt and development.

Bondholders are a major problem

Foreign bondholders, who are the major creditors of many developing countries, have proven to be particularly challenging in providing substantive debt relief in a timely manner. In theory, they should be more flexible than official creditors.

Developing countries have been paying bondholders a premium to compensate them for providing financing to borrowers that are perceived to be risky. As a result, bondholders have already received larger payouts than official creditors. Therefore, they should be better placed than official creditors to assist the debtor in the restructuring processes. However, despite having received  large returns from defaulted bonds, bondholders have remained obstinate in debt restructurings. Our proposal seeks to overcome this hurdle in a way that is fair to debtors, creditors and their respective stakeholders.

How it would work

First, the official creditors and the IMF should create and fund a strategic buyer “of last resort” who can purchase distressed (and expensive) debt at a discount from bondholders. The buyer, now the creditor of the country in distress, can repackage the debt and sell it to the debtor country on more manageable terms. The net result is that the bondholders receive cash for their bonds, while the debtor country benefits from substantial debt relief. In addition, the debtor and its remaining official creditors benefit from a simplified debt restructuring process.

This concept has precedent. In 1989, as part of the Highly Indebted Poor Countries Initiative, the international community’s effort to deal with the then existing debt burdens of poor countries, the World Bank Group established the Debt Reduction Facility, which helped eligible governments repurchase their external commercial debts at deep discounts. It completed 25 transactions which helped erase approximately US$10.3 billion in debt principal and over US$3.5 billion in interest arrears.

Some individual countries have also bought back their own debt. In 2009, Ecuador repurchased 93% of its defaulted debt at a deep discount. This enabled the government to reduce its debt stock by 27% and promote economic growth in subsequent years. Unfortunately, the countries currently in debt distress lack sufficient foreign reserves to pursue such a strategy. Hence, they need to find a “friendly” buyer of last resort.

The IMF is well positioned to play this role. It has the mandate to support countries during financial crises. It also has the resources to fund such a facility. It can use a mix of its own resources, including its gold reserves, and donor funding, such as a portion of the US$100 billion in Special Drawing Rights (SDR), the IMF’s own reserve currency, which rich economies committed to reallocate for development purposes. Such a facility, for example, would have enabled Kenya to refinance its debts at the SDR interest rate, currently at 3.75% per year, rather than at the 10.375% rate it paid in the financial markets.

It is noteworthy that the 47 low-income countries identified as in need of debt relief have just US$60 billion in outstanding debts owed to bondholders. Our proposed buyer of last resort would help reduce the burden of these countries to manageable levels. Second, we propose that both debtors and creditors should commit to the following set of shared principles, based on internationally accepted norms and standards for debt restructurings.

Guiding principles

1. Guiding norms: Sovereign debt restructurings should be guided by six norms: credibility, responsibility, good faith, optimality, inclusiveness and effectiveness.

Optimality means that the negotiating parties should aim to achieve an outcome that, considering the circumstances in which the parties are negotiating and their respective rights, obligations and responsibilities, offers each of them the best possible mix of economic, financial, environmental, social, human rights and governance benefits.

2. Transparency: All parties should have access to the information that they need to make informed decisions.

3. Due diligence: The sovereign debtor and its creditors should each undertake appropriate due diligence before concluding a sovereign debt restructuring process.

4. Optimal outcome assessment: The parties should publicly disclose why they expect their restructuring agreement to result in an optimal outcome.

5. Monitoring: There should be credible mechanisms for monitoring the implementation of the restructuring agreement.

6. Inter-creditor comparability: All creditors should make a comparable contribution to the restructuring of debt.

7. Fair burden sharing: The burden of the restructuring should be fairly allocated between the negotiating parties.

8. Maintaining market access: The process should be designed to facilitate future market access for the borrower at affordable rates.

The G20’s current efforts to address the silent debt crisis are failing. They are contributing to the likely failure of low income countries in Africa and the rest of the global south to offer all their residents the possibility of leading lives of dignity and opportunity.

Danny Bradlow is Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of Pretoria

Kevin P. Gallagher is Professor of Global Development Policy and Director, Global Development Policy Center, Boston University

Marina Zucker-Marques is a Senior Academic Researcher, Boston University Global Development Policy Center, Boston University

Courtesy: The Conversation


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