maria lucia fattorelli new york, october 26th, 2012 debt audit in the context of global crisis
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GLOBAL SITUATION
Crisis
Social
Environmental
Food
Financial
Crisis of ethical values
Extreme power of financial market and media
DECLINING OF LIFE CONDITIONS FOR THE MAJORITY OF WORLDS POPULATION
Global Financial Crisis
Origin: Bank’s Crisis Deregulation of financial marketsUnbacked derivativesToxic assets and speculation
Effects:Largest international banks under risk of bankruptcyBad Banks? Parallel banking systemLarge bail out transactions in US and EuropeNationalization of parts of banksExpansion of Public Debt
GLOBAL SITUATION
Crisis of Private Financial Sector is turned into a
DEBT CRISIS
Instrument of “public” indebtedness is used as a system to embezzle public
resources:
“DEBT SYSTEM”
“DEBT SYSTEM”
How does it work
•Structure of privileges at many orders:• Legal• Political• Financial• Economical
•Guarantees absolute priority to financial payments•High social costs, violation of human rights
This “Debt System” should be unmasked.
Tool: PUBLIC DEBT AUDITS
DEMOCRATIZATION OF FINANCIAL KNOWLEDGE CONSCIOUS SOCIAL MOBILIZATION
RECENT AUDIT: Governmental Accountability Office in the US unveiled that US$ 16 trillion were spent on
secret bailouts by the Federal Reserve Bank to private banks and corporations www.unelected.org/audit-of-the-federal-reserve-
reveals-16-trillion-in-secret-bailouts
Citigroup: $2.5 trillion ($2,500,000,000,000)Morgan Stanley: $2.04 trillion ($2,040,000,000,000)Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)BNP Paribas (France): $175 billion ($175,000,000,000)
http://www.gao.gov/products/GAO-11-696
Source: Jorge Gaggero, Romina Kupelian y María Agustina Zelada - LA FUGA DE CAPITALES II. - ARGENTINA EN EL ESCENARIO GLOBAL (2002-2009) - Documento de Trabajo Nº 29 - Julio de 2010 – CEFID-AR – Pag 62 -63 - Disponible
en: http://www.tjnamericalatina.org/wp-content/uploads/2010/10/LA_FUGA_DE_CAPITALES-II.pdf
BANKS IN TAX-HAVENS
ACADEMIC RESEARCH43.000 EMNs : more than 1.000.000 of property attachments
40% of control in hands of 147 and high “core” conexion75% of the “core” are financial entities
75% of the 147 companies are in hands of central institutionsAbout 50 institutions of the financial sector have the control the center
S. Vitali, J.B. Glattfelder, and S. Battiston (2011) The network of global corporate control
To deal with the Debt Crisis, the system recomends
• CONTROL PUBLIC DEFICIT
• PAY PUBLIC DEBT
Method• Large budget cuts
• Tax Reform (Shift tax burden directing it to lower incomes)
• Neoliberal reforms
Where this debt came from?
DEBT AUDIT
Access to documents will answer
Where the debt comes from?
How much the country actually received?
How much have been paid?
How much do we really owe?
Who contracted these debts?
Where were the resources applied?
Who had benefited and profited from the debt?
How responsible are the creditors and international organizations in this process?
DEBT AUDIT
Technical instrument, but not only accounting
• Explains the mechanisms that generate “public” debt
• Clarifies the reasons of immensurable growth of the debt
• Unveils the juridical structure of financial privileges
• Proves the political instrumentalization (dictatorship, tecnocracy) in benefit of financial sector
• Shows the speculation that benefits banks
EXPERIENCES in DEBT AUDIT
ECUADOR
• OFICIAL DEBT AUDIT
BRAZIL• CITIZEN DEBT AUDIT
• PARLAMENTARIAN INVESTIGATION
IRELAND• ACADEMIC DEBT AUDIT
Other initiatives
ECUADOR: lesson of sovereignty
Official Commission for Debt Audit
Participation of citizens
Created by Decree in 2007
In 2009: Sovereign proposal of recognition of a
maximum of 30% of the external debt represented by 2012
and 2030 bonds
95% of the bond holders accepted Ecuadorian proposal,
which means that 70% of the debt to private international
banks was cancelled
US$ 7,7 billion saved for the next 20 years
Increase of social expenses, especially Health Care and
Education
COMISIÓN PARA LA AUDITORÍA INTEGRAL DEL CRÉDITO PÚBLICO
ECUADOR – Audit Comission – CAIC – Decree 472/2007
Integral audit with social participation
Art 4º - The CAIC is authorized to audit and transparent all
indebtedness processes of state institutions.
Art 9º - All public sector entities are obliged to provide information
requested by the Commission in the terms and penalties
established in the Law on Fiscal Transparency.
LEGAL BASIS AND POLITICAL BACK UP ARE INDISPENSABLE TO CARRY OUT THE AUDIT
COMISIÓN PARA LA AUDITORÍA INTEGRAL DEL CRÉDITO PÚBLICO
Definition of the integral audit – Decree 472
Art. 2 - Integral audit is defined as:
“the supervising action managed to examine and evaluate the
process of contraction and/or renegotiation of public
indebtedness, the origins and the destination of the resources,
and the execution of projects that are financed with domestic or
external debt, in order to determine its legitimacy, legality,
transparency, quality, efficacy and efficiency, considering legal and
financial aspects, and the impact on economy, society, gender,
regions, ecology, nationality and peoples”
COMISIÓN PARA LA AUDITORÍA INTEGRAL DEL CRÉDITO PÚBLICO
Final report of CAIC presented to President Rafael Correa on September 2008
Some general conclusions:The process of indebtedness of Ecuador, during the
period between 1976 and 2006, from the perspective of a structural continuity, has been developed for the benefit of the financial sector and transnational corporations, clearly affecting the nation’s interests.
Commercial debt:• Net transfer of resources in the amount of US$ 7.13 billion
in 30 years.• Increase of the debt from US$ 115.7 million to US$ 4,200
billion (1976-2006)• Debt has not been a source of financing for the state.
Actually, it represented a continuous loss of resources.
ECUADOR: Access to information that unveiled:
• Facts that also occurred to other countries, which should be backed up by integral audits
• Impressive similarities
• Disrespect to human rights due to the continuous subtraction of resources that should be destined to answer to the basic needs: health, education, assistance
• Possibility of articulation between countries that were submited to the same process of indebtedness
CITIZEN DEBT AUDIT - BRAZIL
• Historical approach of the debt: studies, documents, reports of Parliament
• Analysis of national budget and denouncing of the privileges of the debt
• Compilation of legal arguments
• Major political results
Audit in Ecuador - CAIC
Parliamentary commission of inquiry in Brazil CPI
• National demonstrations involving workers’ associations, students, and
other popular organizations.
• International connection – countries and organizations (Latindadd,
CADTM, JS, UNCTAD)
• Popular reports, participation in national and international events, books,
movies, studies, website: www.auditoriacidada.org.br
Brazilian
Paradox
• 6th Major World Economy
• 3rd Worst Wealth Distribution
• 84th on the ranking of human rights - IDH
Nota: Inclui o “refinanciamento” ou “rolagem”, pois a CPI da Dívida constatou que boa parte dos juros são contabilizados como tal.
Fonte: SIAFI / Elaboração: Auditoria Cidadã da Dívida, OBEDECENDO-SE O PRINCÍPIO DA UNICIDADE ORÇAMENTÁRIA
R$ 708 bilhões (17% do PIB)
Orçamento Geral da União – Executado em 2011 – Total = R$ 1,571 trilhão
WHO PROFITS? WHO LOSES?
Fonte: Banco Central - http://www4.bcb.gov.br/top50/port/top50.asp
Apparent fallIncrease of supplies
SOVEREIGN DEBT
CONCEPTS
Public Debt
Domestic DebtNew “FACE” of external
debtExternal debt
MULTILATERAL
BILATERAL
COMMERCIAL (Debt with
International Private Banks)
PRIVATE*
BRAZIL: Relevance of External Debt to Private International Banks EXTERNAL DEBT: Registered by Central Bank US$ million – 1969 to
1994
-
20.000,0
40.000,0
60.000,0
80.000,0
100.000,0
120.000,0
140.000,0 19
69
1970
19
71
1972
19
73
1974
19
75
1976
19
77
1978
19
79
1980
19
81
1982
19
83
1984
19
85
1986
19
87
1988
19
89
1990
19
91
1992
19
93
1994
Outros
Agências Governamentais
BID
Banco Mundial
Empréstimos do FMI
Empréstimos em Moeda
Bônus de Dívida Renegociada com bancos
Fonte: Relatórios Anuais do Banco Central disponibilizados à CPI da Dívida.
Fonte: Banco Central - Nota para a Imprensa - Setor Externo - Quadro 51 e Séries Temporais - BC
Pre-payment to IMF; goodwill
• Interest increase• Debt
converted to CB
Dictatorship debt
Fonte: Banco Central - Nota para a Imprensa - Política Fiscal - Quadro 35.
CPI: Ausência de Contrapartida
realMecanismos financeirosConflito de interesses Falta de transparência
Debt Investigation Parlamentary Comission:
Transformation of External Debt into “Domestic”
Lack of real counterpartFinancial mechanisms
The strategy of keeping power under
capitalism
Increasing profits of financial and big corporate sectors
Financing of electoral campaigns and corruption
Extreme power of the press linked to the large capital
Illusory distribution of wealth• Small advantages for poor people: “Family Basket” • Minor adjustments for workers • Access to cheap products: sensation of a better life• Access to credit/financing
Model of accumulation
Parliamentary Comission of the Debt - Brasil
CPI – HOUSE OF REPRESENTATIVES
Created in December 2008 and settled in August 2009, after an effort of Deputy Ivan Valente (PSOL/SP)
Finished on May 11th 2010
Identification of serious evidences of illegalities in public debt
At the present: under investigation by Federal Prosecutors’ Office
Strategies
DEBT AUDIT with CITIZEN PARTICIPATION
Regional centers to dismantle the “Debt System” and democratize knowledge of financial reality
CONSCIENT SOCIAL MOBILIZATION
CONCRETE ACTIONS• Centers of Citizen Audit
• Follow investigations
• Review monetary and fiscal policy to guarantee income distribution and social justice
• Respect human rights
• TRANSPARENCY and access to TRUTH
Challenges and Proposals
• Disseminate the experiences of Debt Audit in Ecuador and Brazilian Debt Parliamentary Investigation Commission and encourage the implementation of new audits;
• Emphasize the importance of the audit of debt in the global financial crisis, the increase of illegitimate debt due to governments borrowing to bail out private banks, making neoliberal reforms;
• Identify in each country the process of exchanging external debt for domestic debt
• Deepening legal studies on responsibility of creditors, asymmetry between the parties, violation of international principles (fairness, rebus sic stantibus), violation of human rights, the right to development and financial sovereignty;
• Discussion on the need for debt auditing in the forum of experts set up by UNCTAD
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