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Maria Lucia Fattorelli New York, October 26th, 2012

Maria Lucia Fattorelli New York, October 26th, 2012. Debt Audit i n the context of global crisis. GLOBAL SITUATION Crisis Social Environmental Food Financial Crisis of ethical values Extreme power of financial market and media

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Maria Lucia Fattorelli New York, October 26th, 2012

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  1. Maria Lucia Fattorelli New York, October 26th, 2012 Debt Audit in the context of global crisis

  2. 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

  3. Global Financial Crisis • Origin: Bank’s Crisis • Deregulation of financial markets • Unbacked derivatives • Toxic assets and speculation • Effects: • Largest international banks under risk of bankruptcy • Bad Banks? Parallel banking system • Large bail out transactions in US and Europe • Nationalization of parts of banks • Expansion of Public Debt

  4. 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”

  5. “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

  6. 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

  7. BANKS IN TAX-HAVENS 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

  8. ACADEMIC RESEARCH43.000 EMNs : more than 1.000.000 of property attachments40% of control in hands of 147 and high “core” conexion75% of the “core” are financial entities75% 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

  9. 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?

  10. 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?

  11. 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

  12. EXPERIENCES in DEBT AUDIT • ECUADOR • OFICIAL DEBT AUDIT • BRAZIL • CITIZEN DEBT AUDIT • PARLAMENTARIAN INVESTIGATION • IRELAND • ACADEMIC DEBT AUDIT • Other initiatives

  13. 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

  14. 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

  15. 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”

  16. 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.

  17. ECUADOR: Access toinformationthatunveiled: • 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

  18. 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

  19. Brazilian • Paradox • 6th Major World Economy • 3rd Worst Wealth Distribution • 84th on the ranking of human rights - IDH

  20. Orçamento Geral da União – Executado em 2011 – Total = R$ 1,571 trilhão R$ 708 bilhões (17% do PIB) 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

  21. WHO PROFITS? WHO LOSES? Apparentfall Increaseofsupplies Fonte: Banco Central - http://www4.bcb.gov.br/top50/port/top50.asp

  22. CONCEPTS Public Debt Domestic Debt New “FACE” of external debt External debt MULTILATERAL BILATERAL COMMERCIAL (Debt with International Private Banks) PRIVATE* SOVEREIGN DEBT

  23. BRAZIL: Relevance of External Debt to Private International Banks • EXTERNAL DEBT: Registered by Central Bank US$ million – 1969 to 1994 Fonte: Relatórios Anuais do Banco Central disponibilizados à CPI da Dívida.

  24. Dictatorship debt • Interest increase • Debt converted to CB Pre-payment to IMF; goodwill Fonte: Banco Central - Nota para a Imprensa - Setor Externo - Quadro 51 e Séries Temporais - BC

  25. CPI: Ausência de Contrapartida real Mecanismos financeiros Conflito de interesses Falta de transparência Debt Investigation Parlamentary Comission: Transformation of External Debt into “Domestic” Lack of real counterpart Financial mechanisms Fonte: Banco Central - Nota para a Imprensa - Política Fiscal - Quadro 35.

  26. 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

  27. 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

  28. CPI of Debt: Large social participation

  29. 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

  30. 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

  31. Stop “Debt System” consecuences THANK YOU Maria Lucia Fattorelli www.auditoriacidada.org.br

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