A Systemic Approach to Equitable Borrowing: Which Normative Instruments?

Developing countries continue to struggle with unfair and unequitable borrowing costs and practices. The roots of the problem are complex and intertwined. The Compromiso de Sevilla calls for the establishment of a working group to propose a consolidated set of voluntary guiding principles on responsible sovereign borrowing and lending. However, even assuming that voluntary instruments would do the job, this is only one dimension of the problem. The side event will provide an opportunity to provide a systemic understanding of the challenge looking across different FfD action areas and explore possible pathways in the FfD follow-up process to advance concrete normative solutions.

Developing countries continue to struggle with unfair and unequitable borrowing costs and practices. The roots of the problem are complex and intertwined. The Compromiso de Sevilla calls for the establishment of a working group to propose a consolidated set of voluntary guiding principles on responsible sovereign borrowing and lending. However, even assuming that voluntary instruments would do the job, this is only one dimension of the problem. The cost of borrowing is influenced by several factors, including interest rates, currency dependence and other macro-economic and monetary dimensions, biased and often procyclical assessments by Credit Rating Agencies, and widely unregulated practices by non-banking financial intermediaries. Meanwhile, colonial roots of commodity dependencies are reinforced by this debt cycle, as the higher cost of borrowing for many Global South countries maintains the need for export-oriented production to earn dollars and repay those interests in foreign currencies. These lock-ins and vicious cycles deepen inequality and commodity traps for many developing countries at the expense of their local socio-economic transformation agenda. In turn, while countries remain focused on export-oriented trade models and stuck in using much of their resources to repay debts, private finance appears as a solution to fix development challenges in the immediate term, unfortunately proving to be a false one on most if not all occasions. Such a systemic challenge requires a systemic approach. More importantly, it calls for clear and enforceable normative instruments in international law.

The format will be a roundtable (Chatham House rule) with representatives from member states, civil society, academia, UN agencies and Secretariat to enable open discussions and reflections.