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Report: Private Lenders Increase the Risk of a Global Debt Crisis

(teleSUR) Private creditors have replaced the public sector as lead borrower to developing countries, which has contributed to a new borrowing and lending boom.

Private financial institutions are responsible for prompting a potential “new wave” of debt crises among developing nations, according to a new report carried out by European Think Tank Eurodad.

Public debt in developing countries is increasingly being borrowed from private lenders, which the authors argue has meant that an increasing portion of credit is not effectively monitored or regulated.

“Private borrowers, in particular private corporations, have used this regulation gap to throw a big borrowing party, a debt party, and thus have contributed disproportionately to the external debt burden that developing countries carry now,” the report warned.

As part of its findings, the authors of the report concluded that, “while relative debt burdens decreased between 2000 and 2010, these trends have reversed in 2011. Since then debt is on an upward path, also when measured in relative terms.”

The report advocated for an urgent need to implement more transparent and democratic mechanisms in the process of sovereign debt restructuring including progressive proposals that grant states the right to negotiate the terms of their debt repayments.

“Both sides have a duty to negotiate in good faith when debt needs to be restructured, and lenders must refrain from abusive measures, i.e. vulture funds litigation,” the report added.

In efforts to address unfair debt negotiations, Eurodad called on the international community to implement a framework for ethical lending practices as well as safeguards to protect governments from illegitimate debts.

“The evolving nature of debt requires up-to-date solutions for a development effective debt regime and for debt crisis prevention and resolution that must be able to reach the whole debt stock,” Eurodad said in a press release on Thursday.

This post originally ran on teleSUR.