EXPERIENCES OF DEBT AUDITS

An alternative to the crisis

Maria Lucia Fattorelli

Seminar Debt and Austerity:

From the Global South to Europe

Athens, Greece, 6th-8th May 2011

EXPERIENCES OF DEBT AUDITS

Citizen Debt Auditing – BrasilSince 2001, Coordinator

Official Debt Audit – Ecuador2007-2008, Member of the Commission CAIC

Parliamentarian Investigation – Brasil2009-2010, Assessor of the Federal Deputies

CPI

• Citizens' initiative from the assessment conducted in 2000, with more than 6 million

votes

• Pressure for the realization of the Official Debt Audit, required by the 1988 Federal Constitution, but never implemented

CITIZEN DEBT AUDIT

BRASIL

CITIZEN DEBT AUDIT-BRAZIL• KEY INITIATIVES:

I - Historic Debt Rescue: Studies, Documents, Congress Reports

II - Support for Current Events

Analysis of National Budget and fight against the privilege of debt

III - Compilation of Legal Arguments – Law Suit of Lawyers in STF

IV – Main Political Results

CAIC in Ecuador

CPI in Brazilian Parliament

V – National Mobilization linking organizations or workers, students and other popular associations

VI - International Connection: Countries and Organizations LATINDADD, CADTM, JS,

UNCTAD

VI I- Popular Publications, participation on national and international events, book, video, studies, website: www.divida-auditoriacidada.org.br

LEGAL/POLITICAL ARGUMENTS

1. ILLEGITIMATE DEBT

Study published in Ecuador

2. DEEPENING STUDIES ABOUT:• Co-responsability of creditors Example: Norway• Asymmetry between parts• Violation of principles: Reasonability, Rebus sic Stantibus• Right to Development and to Sovereignity• Violation to Human Rights

3. BUILD JURISPRUDENCE: Start studies to build jurisprudence and impulse INTERNATIONAL LEGITIMATE AND FAIR LEGAL FORUMS

Source: SIAFI - http://www.camara.gov.br/internet/orcament/bd/exe2010mdb.EXE. Elaboração: Auditoria Cidadã da Dívida

R$ 635 billions

Debt Payments: Highest expense of the Federal Budget

Brazilian Federal Budget - 2010

CITIZEN DEBT AUDIT-BRAZILCHALLENGES/ DIFFICULTIES:

POLITICAL SITUATION: • Since PT took over the government in 2003, the forces against indebtness

process got very difficult, because Lula didn´t change the debt-policies• This way, the rich elite, banks, industries and big-media – who take

advantage of public debt - became stronger, because the traditional opposition of PT and other parties that turned to support Lula´s government were all together on the same side

• Since 2005, when Lula paid IMF - symbol of debt - there is a continuous speech (from gov. and media) that “the Brazilian Debt is not a problem”

• Citizen Debt Audit has to do a very hard effort to analyze facts and take the discussion about Debt-process and its consequences to workers of all areas, retired people, students, unemployed, and all social movements who fight for social services, specially health and education.

CITIZEN DEBT AUDIT-BRAZILCHALLENGES/ DIFFICULTIES: ECONOMIC SITUATION: Brazilian Internal Debt is over R$ 2.3 trillions (over US$ 1.5 trillion), the

External Debt is over US$ 300 billion, and the service of the debt took 45% of National Budget in 2010. That´s the reason for such deep inequality in Brasil: 7th largest economy; 73rd Human Development Index

DEBT: BRAZILIAN MAJOR PROBLEM 2011 – President Dilma Roussef proceeded the largest budget cut of R$50

billion (US$33billion) to reduce social expenses in order to pay debt; announced the “need” of tributary and pension reforms; keeps selling petroleum areas by auctions. No question on debts payments besides the many indications of illegality and illegimacy founded by the CPI – Commission of Investigation of Debt in Brazilian Parliament

Risks of transference of Financial Crisis to Brasil: investments of Petroleum and Sovereign Funds in international market; free capital flow

DEBT AUDIT RIGHT to ACCESS INFORMATION

BASED on DOCUMENTS and PROVES (not only an opinion, a point of view or a thesis)

EVIDENCES of the TRUE ROLE of PUBLIC DEBT that allows Political and Juridical Actions

WHAT HAS PUBLIC DEBT BEING? Instrument to Finance the Public expenses?

or Instrument of Financial Power that utilizes the

Debt as a mechanism of transference of public resources to the financial private sector ?

Official Debt Audit – Ecuador

Integral Debt Audit Definition – Decree Nº 472 / 2007:

Art. 2 - Integral Debt Audit is:   

“oversight actions aimed at reviewing and evaluating the contracting

process and / or renegotiation of public debt, the source and destination

of resources, and implementation of programs and projects to be

financed with internal and external debt, in order to determine its

legitimacy, legality, transparency, quality, effectiveness and efficiency,

considering the legal and financial aspects, the economic, social,

gender, regional, ecological and nationalities and peoples”

OFFICIAL AUDIT OF THE PUBLIC DEBT WITH CIVIL SOCIETY PARTICIPATION - CAIC

• CAIC Final Report Presentation: October/2008.

• Interruption of interests payments (Global Bonds 2012 and 2030): November/2008

• Sovereign proposal to repurchase the principal of these bonds paying only 30% of its nominal value in order to end this debt and interests. RESULT: 95% of the creditors accepted

The Economist (23/04/2009): “Mr. Correa seems to be incorruptible (...) public spend increase 71% on 2008, due to investments in schools and

hospitals”

“Ecuador suggests sovereign external debt audits worldwide” (Ecuador Inmediato, 23/04/2009)

ECUADOR: LESSON OF SOVEREIGNITY

PARLIAMENTARY INVESTIGATION – BRASIL

CPI – PUBLIC DEBT

Commission created by the Brazilian

Parliament to investigate the public debt of

the Union, states and municipalities, interest

payments, the beneficiaries of these payments

and its dramatic impact on social policies and

sustainable development in the country

PARLIAMENTARY INVESTIGATION – BRASIL

Participation of Civil Society Access to documents untouched since dictatorship (1970´s)Most relevant Participation of Private Banks on the

External and Internal Debt Stock and Payments Most relevant Benefits to Private Banks Debt in all

decades since the 70´s Since 80´s, Debt increase without correspondence in social

benefits or investments to the country. Crisis opened the way to IMF intervention in internal subjects

Consecutive change of the debt face, from EXTERNAL to INTERNAL, that pay the highest interest rates

Investigation sent to Prosecutor

GREECE - DEBT AUDIT

What is the origin of Greek Debt of almost € 400 billion? Did Greece received this amount of money? Where did it go to? Who got the benefit of these loans? For which purpose?

How big is the responsibility of the Banks for:

not telling the true about the amount of Greek Debt in order to impulse more and more new loans, turning it exaggerated?

speculating with Greek bonds, in order to make the interest rates go up continuously to force an intervention from IMF?

playing with derivatives, “Credit Default Swaps” and other “toxic” papers?

GREECE - DEBT AUDIT Why did Greek government accepted IMF and EU

impositions to implement reforms against the people, benefiting the Banks?

How much money has the Greek government destined to rescue Banks?

What is the influence, on the increase of public debt, of conceded tax reduction to the richest part of Greek society? A UE Report points that, from 1995 to 2010, the income tax of Greek companies came down 40% to 24%. And how much the workers are their families are paying?

Only an AUDIT can answer these and other important questions to Greek people, who is paying the “bill” of the

crisis.

GREECE - DEBT AUDIT STEPS Organize a Commission: CITIZEN, OFFICIAL or

PARLIAMENTARY

ACCESS TO DOCUMENTS: statistics; records about real situation of Greek public debt and its historical evolution;

accounts, complete contracts and reports about all financial operations with bonds, private debts transformed

into public, banks rescues, interests and other taxes, fees and costs agreed and paid; destination of funds; exposition

to derivatives, “Credit Defaults Swaps” and all “toxic” papers, tax reductions and benefits approved in the last

period; deregulation of financial market

Chance of articulation with other countries submitted to the same process of borrowing

France Ireland Greece

Portugal UK Spain

DEBT CRISIS IN EUROPE Banks Rescue take over Social Rights

REDUCTION OF WAGES, PENSIONS, SOCIAL EXPENSES

WHAT FOR?

TO PAY DEBT MADE TO SAVE THE PRIVATE BANKS

THIS MUST BE AUDIT!

IMF

When people can vote, the debt is defeated

Illegitimate Debt: ICELAND SAY “NO”

The BANKS are being saved!

We fight for justice and guarantee decent life for all human beings

Thank you,

Maria Lucia Fattorelli

www.divida-auditoriacidada.org.br