Debt and human rights
View(s):All hell had broken loose it appeared, on this warm and sunny Thursday morning. Kussi Amma Sera was at her vociferous best, waving a piece of paper as she brought in the morning cup of tea in the other hand, saying: “Mahattaya, balanna, mey naya dena mahaththuru apey gamme minisun-ta kochchara karadara karanawa-da. (See how these gentlemen from microfinance companies are harassing our villagers).”
She was referring to villagers getting into deeper debt and how officers from small microfinance companies were resorting to all kinds of threats to recover the money.
In one reported instance, a microfinance officer had walked into the home of a woman whose husband had died that morning and demanded the money. “He was threatening me over the dead body of my husband,” the woman had wailed.
This came to my mind when it was announced that a top UN official assigned to deal with debt and human rights was visiting Sri Lanka for discussions with local officials and humanitarian and other organisations.
For a fleeting moment I was perplexed about the relationship between human rights and debt. Did it refer to small loans granted by microfinance companies which borrowers were finding it difficult to pay and which have become a huge issue in Sri Lanka or what?
As I was reflecting on these thoughts, the phone rang and Arthika, my nonsensical economist friend, was on the line.
“I say, the Government’s plan to settle some of the debts of small borrowers might not work,” he said.
“Why is that?” I asked, knowing he was referring to a recent decision by the Government to write-off loans up to Rs. 100,000 given to women in around 12 drought-affected districts while the finance companies write-off the interest payments.
“Apart from putting the non-finance banking sector off-gear, this is a bad precedent,” he argued. “But aren’t these borrowers in deep trouble and don’t have the ability to pay as their seasonal crops have been devastated by drought?” I asked, again.
“Agreed but it triggers too many issues,” he said, adding there should be other ways to settle debt instead of disrupting the system of offering loans with collateral.
The dilemma of desperate borrowers who are unable to pay for valid reasons is reflected in the enormous debt in the Northern Province after smaller finance companies flooded the market in the post-war era with loans to households for small business activities. Many of these companies offering loans from Rs. 10,000 upwards resorted to devious means to recover the money from desperate borrowers, hit by drought and other problems, and driven to suicide due to their inability to repay the loans.
The phone rang again and this time it was Pedris Appo, short for Appuhamy – a retired agriculture expert who does farming — on the line.
“Machan, I hope that UN expert who is arriving tomorrow will also discuss internal debt problems like those affecting our farmers, small-scale businesses and individual borrowers,” he said.
“But isn’t that his mandate,” I asked.
“Nope, his mandate, I believe, is to discuss the external debt situation (our borrowings internationally) and whether the measures taken by Government to repay these loans impact on the rights of people,” he said.
We discussed briefly about the situation before cutting short the conversation since I had a column deadline to meet.
On September 3, the UN Independent Expert on Foreign Debt and Human Rights, Juan Pablo Bohoslavsky arrives on a week-long visit to “collect first-hand information and examine questions related to debt and other financial obligations from a human rights standpoint”, according to an official statement.
In a nutshell, the relationship between foreign debt and human rights in a country refers to repayment policies that may increase poverty, reduces a state’s social obligation to the people particularly in education and health and affects the cost of living owing to obligations to lenders including countries and the International Monetary Fund (IMF).
Des Gasper, Professor of Human Development, Development Ethics and Public Policy at the Netherlands’ Institute of Social Studies, in a 2004 paper on this topic, wrote:
“Consider the example of the international debt of low-income countries. By the late 1990s many very poor countries paid more in debt service, largely to rich countries, than they spent on education or health. Typically their education and health budgets had been cut at the insistence of international financial organisations, after the countries had failed to service their debts following rises in oil prices and interest rates and other shocks.”
“The Universal Declaration of Human Rights (UDHR), endorsed by nearly all governments including debt collectors, prioritises access to education and health care. In welfare-states, when a family goes bankrupt no child is expected to lose access to basic education and health care in order for debts to first be repaid; this principle should apply for people everywhere,” he said.
In recent times, Sri Lanka has been battling its foreign debt servicing which takes up a huge chunk of the annual revenue and amounting to large annual sums in coming years. Repayment of debt is mostly based once again on borrowing via bonds and Treasury bills resulting in a never-ending cycle of debt repayments. The current Maithri-Ranil administration blames much of these issues on large-scale borrowings by the previous Rajapaksa family-led regime particularly for huge infrastructure projects like the Hambantota Port and Airport. In simple terms, to pay off a borrowing of say Rs. 500 million, the authorities have to borrow another Rs. 500 million at a higher cost. Though the Government has given various timelines on the repayment cycle, when this cycle of debt will end, is anybody’s guess.
On the other hand, too much Government intervention in reducing the cost of living through subsidies and other means – which leads to more Government debt – is also not helpful. My colleague columnist, Down-to-Earth economist Sirimal Abeyratne explains this lucidly in his column below using the example of oil rich Venezuela where bad policies have led to galloping inflation and people literally starving.
The crises from reducing subsidies, resorting to fuel price hikes as and when prices rise (it rarely drops), increasing prices of imported essential commodities like sugar and wheat flour as and when import prices rise, while on the other hand ensuring communities don’t suffer due to the rising cost of living, is an unenviable task of any administration. Many of the problems incurred by Governments are also due to large losses by state-owned institutions and financial support from the state to sustain them.
Forced to borrow from the IMF – the lender of last resort — the Government is also compelled to follow the ‘dictates’ of the organisation in not utilising foreign reserves to intervene in the money markets and halt the depreciation of the rupee against the US dollar, increase tax revenue (means more taxes on the people) and reduce subsidies. These in turn result in more burdens on the population, particularly low income communities as the tax on goods, rises. Whether these form part of the mandate for discussion by the visiting UN expert remains to be seen.
One thing is clear however: The extent to which the Northern folk and farmers elsewhere, particularly women, are indebted to small-time lenders (and village-level ‘poli-mudalalis’) needs to be addressed, for many lenders use devious ways to attract villagers to buy into these loan schemes at exorbitant rates of interest. A violation of their human rights would be in the inability of borrowers to properly understand the terms of borrowing, repayment periods and using ‘gentle’ persuasive methods, with borrowers having little knowledge on the repayment terms.
Regulatory authorities like the Central Bank and the Treasury need to come up with stringent mechanisms to control this parallel system of lending to small borrowers ensuring, in the first place, that borrowers are clearly aware of the repayment schedules and collateral offered. This is easily said than done, for many small-time borrowers resort to such lending purely because it has fewer restrictions than what is available in the more organised lending sector.
There should be mechanisms that don’t infringe on the rights of borrowers like Kussi Amma Sera and her relatives in the village who struggle to make a living largely because of the debt the country is burdened with and doesn’t have enough income to reduce taxes on the people.