Finance: Guiding principles on HR impact of economic reforms

The policy responses to the recent financial crisis have revealed a deep-seated structural neglect of human rights in economic policy formulation, insufficient protection of the most vulnerable and a lack of attention to participation, consultation, transparency and accountability, a United Nations human rights expert has said.

"That neglect is the driving force behind the development of guiding principles for assessing the human rights impact of economic reform programmes and the development of analytical and methodological tools to assess human rights impacts."

This is one of the main conclusions highlighted by Mr Juan Pablo Bohoslavsky, the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights.

The conclusions are in his report to the upcoming thirty-seventh session of the UN Human Rights Council (26 February-23 March 2018).

According to the rights expert, the guiding principles will help States and international financial institutions to comply with their human rights obligations in periods of financial distress when considering fiscal consolidation measures, countercyclical initiatives and alternative economic choices.

"Although such human rights-specific guidance has not yet been adequately developed, relevant tools, experience and research exist to inform the efforts to do so," he said.

He added that the guiding principles should start from the premise that managing economic and fiscal affairs is a core government function and responsibility.

Fiscal consolidation and wider economic reforms are not inherently incompatible with a State's human rights duties; indeed, such measures can comply with international standards if they are designed and implemented with those standards in mind, Mr Bohoslavsky underlined.

In March 2017, the Human Rights Council, in its resolution 34/3, requested the Independent Expert to develop guiding principles for assessing the human rights impact of economic reform policies, in consultation with States, international financial institutions and other relevant stakeholders.

In his present report (A/HRC/37/54), the Independent Expert discusses the development of guiding principles for assessing the human rights impact of economic reform policies.

He identifies the main challenges of developing guiding principles for assessing human rights impacts, including their basis, scope, content, issues related to timing, and some reflections on how to proceed, and concludes with some preliminary recommendations for discussion on the content and format of the guiding principles.

The Independent Expert said he intends to circulate the draft guiding principles for assessing the human rights impact of economic reform policies to States, international financial institutions, national human rights institutions, civil society organizations and other relevant stakeholders by August 2018 with a view to obtaining written feedback in the form of comments from all stakeholders.

He plans on submitting the final text of the guiding principles to the Human Rights Council for its consideration at its fortieth session.

Evolution in responses to financial crises

In his report, Mr Bohoslavsky highlights the evolution in structural adjustment responses to financial crises and the mitigation of adverse social impacts up to the 2007-2008 financial crisis, as well as how structural adjustment programmes affect human rights.

He underscored that, for both economic and legal reasons, economic reform programmes must be inclusive and advance human rights.

According to the report, the latest global financial crisis (2007-2008) is widely considered the worst of its kind since the Great Depression.

A decade later it continues to take a toll through fiscal austerity that dampens recovery and reduces the scope for economic and social transformation that is needed to generate more inclusive, rights-based societies with access to decent work, social services and social protection for all.

The contagion of the financial crisis that was ignited in the United States of America was fuelled by what has been described as "hyper-globalization", which brought both benefits and increased vulnerability to societies around the world.

It also opened the way for financialization, a process that enabled financial institutions and markets to increase in size and influence.

The United Nations Conference on Trade and Development (UNCTAD) concluded that the continuation of that process, along with deepening inequalities, increased the likelihood of a financial crisis recurring.

"Irrespective of whether financial crises are caused by external or internal factors or a combination of both, there is need to develop frameworks for solving them which put respect for human rights at the centre," said the rights expert.

Mr Bohoslavsky noted that since the 1980s, there has been growing consensus that economic crises and many structural adjustment policy packages that have been implemented to prevent or overcome them can cause severe adverse human rights impacts.

"It is then not surprising that economic reform policies have been increasingly associated with initiatives to mitigate adverse impacts on the livelihoods of poor communities. Yet, for a number of reasons, these initiatives have often been far from being considered successful."

While it has been acknowledged that structural adjustment and fiscal consolidation policies can have massive adverse impacts on persons in situation of vulnerability, most of those policies have not been designed or implemented in a manner that would promote or safeguard human rights. Often the focus has been limited to mitigating the worst social impacts, rather than implementing reforms that would prevent or dampen future crises.

Mr Bohoslavsky said countercyclical responses that invest in social development are both feasible and associated with a more equitable and sustainable economic recovery.

However, many States and international financial institutions do not seem to have learned those lessons; austerity has been the predominant response to the recent financial crisis, and fiscal consolidation policies have largely remained human rights blind, with their principal focus on ensuring balanced public budgets at all costs.

International and regional human rights mechanisms have pointed out that budget cuts in various countries have affected the rights to health, education, food, housing, work, social security, water, as well as political and civil rights, such as access to justice, the right to participation, the freedoms of expression, assembly and association.

"The right to life and personal integrity has not been spared; economic crises further entrenched by austerity policies have triggered an increase in suicides in some countries, resulted in the exclusion of individuals from life-saving public health care and weakened public health-care systems to such extent that they have been ill-equipped to respond to epidemics."

The report pointed out that austerity policies are often justified by an overly simplified or misleading diagnosis - in particular, blaming excessive public expenditure for fiscal crises without even considering other relevant factors, such as external shocks, insufficient revenue streams, financial deregulation, widening inequalities, depressed wages among low- and middle-income households or other failures owing to globalization.

Policy decisions are frequently taken without sufficient consideration of less harmful policy options and reliable analysis of foreseeable outcomes. The information is often not publicly accessible in any meaningful way nor subject to meaningful participation by groups in society that may be adversely affected.

"To date, there is no general framework or methodology for adequately assessing the human rights impact of economic reform policies. That makes it extremely difficult to assess the real and often cumulative effects of austerity policies on the entire population and, in particular, the most marginalized segments," the Independent Expert said.

He noted that while the 2007-2008 international financial crisis was the worst in decades, the origin of the debt crises in Latin America in the 1980s, which had spread globally, was also tied to domestic policy concerns in the United States of America and other developed countries.

Following the Latin American crises, advanced economies sought to tackle their high levels of inflation and attract investments by increasing interest rates, which escalated interest payments for borrowers in the developing world.

Debtor countries turned to the International Monetary Fund (IMF) for bridge finance and for advice on how to deal with the financial impacts of the crises. The structural adjustment policy package that came to be characterized as the "Washington Consensus" became the dominant remedy.

As a condition for accessing IMF financing, the reduction or reform of public spending and the liberalization of markets by removing controls and barriers, including on the movement of capital, were proposed.

By the mid-1980s, governments, researchers and an emerging international civil society community had begun to voice their concerns about the severe, adverse impact of such policy prescriptions on the ability of countries to promote inclusive growth, develop human capabilities and strengthen fair opportunities for all members of society.

Nonetheless, the traditional macroeconomic policy recommendations of market liberalization and structural adjustment continued to dominate, while a number of initiatives were developed in parallel to mitigate their adverse social impacts.

In the late 1980s, the international financial institutions launched "social funds" as temporary social assistance or social protection facilities. That initiative gave rise to the development of the early social impact assessment tools. However, those mechanisms were often not sufficient and the turnaround and resumption of inclusive growth often failed to materialize in the short and medium term.

With the new millennium, the international development community turned more decisively to strengthening the agency of the actual beneficiaries beyond social service delivery systems.

Attention shifted to social protection as a means of securing livelihoods for the elderly and people living with disabilities, facilitating access to nutrition, health and education for children, as well as generating household incomes during adjustment and transition periods.

Social protection floors and conditional cash transfers became major trends in social development cooperation in the early 2000s, favoured by a wide range of governments.

"Yet, no consistent and comprehensive rights-based framework for conducting human rights impact assessments of economic reform programmes has emerged," said the rights expert.

Impact of austerity measures

According to the Independent Expert, today, more than two thirds of countries across the world are contracting their public purses and limiting, rather than expanding, their fiscal space.

Countries are struggling to protect hard-fought gains in improving social protection and coverage. Those gains were the subject of extended advocacy over almost thirty years, but have become increasingly at risk of being reversed.

A 2015 study indicated that austerity was expected to impact more than two thirds of all countries during 2016 to 2020, affecting more than six billion people or nearly 80 per cent of the global population by 2020 and that, contrary to public perception, austerity measures were not limited to Europe; many of the principal adjustment measures featured most prominently in developing countries.

Fiscal consolidation policies have varied from one country to another.
Nevertheless, seven of the most common fiscal consolidation measures are: (a) public expenditure cuts affecting human rights-sensitive fields such as public health care, social security and education; (b) regressive tax changes; (c) wage bill cuts and caps and reduction of positions in the public sector; (d) pension reforms; (e) rationalization and further targeting of safety nets; (f) privatization of public utilities and service providers and introduction of user fees; and (g) reduction in food, energy and other subsidies affecting the prices of essential goods and services such as food, heating and housing.

Fiscal consolidation measures are often accompanied by structural reforms, such as deregulation, labour market flexibilization, reduction in labour rights and various administrative and legal reforms.

While these measures are ostensibly aimed at facilitating future economic growth, reducing unemployment and increasing tax revenues, they have often directly affected the enjoyment of human rights, including access to justice, said the Independent Expert.

"Numerous United Nations bodies and human rights mechanisms have concluded that the financial crises have threatened government expenditure on a wide range of social welfare services when and where they were most needed. Austerity measures have contributed to prolonging the economic crisis and compounded the threat to human rights beyond that posed by the crisis alone."

Austerity policies have contributed to increased social exclusion, as evidenced by long-term unemployment, an increase in homelessness and other manifestations for which there are no easy cures. Addressing such consequences costs governments much more than investing in their prevention.

"It seems obvious that understanding and monitoring the human rights impact of economic reform policies are critical for preventing and mitigating short- and long-term impacts and for building resilience to future crises," said Mr Bohoslavsky.

The report by the Independent Expert also highlighted the legal imperatives as to why human rights should guide economic reform programmes.

It said that while States have the primary responsibility to comply with international human rights treaties and standards, international financial institutions and other international organizations are also bound to respect human rights.

Like any other subject of international law, international financial institutions are bound by the obligations incumbent upon them under the general rules of international law, under their constitutions or under the international agreements to which they are parties.

They are therefore obligated to comply with the human rights set out in the Universal Declaration of Human Rights and in international human rights treaties, which have become part of customary international law and which reflect the general principles of law.

"While many human rights norms are subject to qualifications and limitations, fiscal consolidation and economic reform measures should never violate the minimum core content of economic, social and cultural rights, nor be directly or indirectly discriminatory or result in the adoption of impermissible retrogressive measures in terms of the enjoyment or implementation of economic, social and cultural rights."

The prohibition of impermissible retrogression in human rights law is the key economic, social and cultural rights standard for assessing rights-harming fiscal consolidation and economic reform measures, said the rights expert.

He also noted that wealth and income inequalities had been widening within countries over the two to three decades prior to the latest financial crisis, both in the developing world and among the more developed economies.

In 2015, an analysis by the Organization for Economic Cooperation and Development (OECD) showed that income inequality had a negative and statistically significant impact on medium-term growth. The analysis also indicated that a main factor behind inequality hurting growth is failure to make adequate education opportunities available to poorer households.

The rights expert said equally critical to economic recovery and human development is the expansion of income and work opportunities for all. Poverty and exclusion from the labour market have been described as a waste of human resources with adverse impact on economic growth both through lack of their contribution to the economy and by their need for additional protection.

Human Rights impact assessment

The Independent Expert noted that there is a wide range of impact assessment tools that have been developed since the approach was first introduced in the 1970s to address environmental impacts. Human rights impact assessments are among the newer tools, but the literature has already articulated the value added of a human rights approach.

"Applying a human rights impact assessment approach to situations of and in response to financial stress would be new in the context of economic reform."

A human rights impact assessment would provide a framework and normative guidance that would prompt analysis of the deeper causes of a crisis as well as serious consideration and analysis of alternative responses to crises that can provide a more sustainable path to longer-term growth.

Important lessons can be learned from the reactions to the 2007-2008 financial crisis over the past ten years. The impact - both direct and indirect - of economic policy change on human rights is complex and multidimensional and policymakers could draw on lessons learned from developing a multidimensional approach to poverty.

According to Mr Bohoslavsky, what was lacking until the 2007-2008 financial crisis was an analysis of the multiple ways in which fiscal consolidation measures could impact human rights.

He said: "Policymakers need more detailed guidance that could help to combine that knowledge with analytical approaches that would allow human rights impact assessments to be carried out in a timely and solid manner and improve policy responses to financial crises by ensuring that they prevent, minimize and mitigate adverse human rights impacts."

Ensuring participation is essential for human rights impact assessments. A key challenge is how to identify, reach and understand the depth and breadth of impacts on different groups at risk of marginalization or vulnerability, such as women, children, the elderly, persons with disability, national, ethnic, linguistic and religious minorities or other groups that may be at risk in a given national context, such as indigenous peoples, refugees or internally displaced persons.

"Reliable and disaggregated data are needed to strengthen modelling or at least inform a more detailed analysis."

The rights expert said that once the analysis of potential impacts is done, a core part of a human rights impact assessment is designing prevention, mitigation and compensation measures to counteract adverse impacts.

This is done by selecting alternative measures, modifying proposed measures through compensating for impacts (e.g., providing cash payments to the poorest to compensate for the removal of fuel subsidies).

The report highlights some key points that it said need to be addressed and considered in designing a human rights impact assessment.

These include the legal basis of the guiding principles; scope of the guiding principles; timing (focus on ex ante human rights impact assessments); addressing different situations; what should be covered; who should conduct the human rights impact assessment; how data and information should be collected; how the human rights impact assessment should be carried out.

As to what should be covered, the Independent Expert proposed that the human rights impact assessment should include: (a) review of all the policy options for tackling a crisis, including countercyclical measures; (b) analysis of how policy changes and proposed budget cuts and other adjustment measures are likely to affect the population, in particular the most vulnerable groups - using a variety of quantitative and qualitative tools; (c) analysis of the extent to which budget, policy, legislative and other changes may contribute to fulfilling the State's human rights obligations or potentially undermine them; and (d) a (non-exhaustive) list of preventive or mitigating measures to take to respond to the analysis that are in line with the government's human rights obligations.

Some recommendations on the guiding principles

In order to advance the discussion on the development of the guiding principles for assessing the human rights impact of economic reform policies, the Independent Expert has recommended that the guiding principles should:

(a) Recognize that managing economic and fiscal affairs is a core government function, while underlining the obligations of States and international financial institutions to ensure that their economic reform policies and conditionalities on financial support respect human rights;

(b) Draw on existing human rights standards relating to economic, social, cultural, civil and political rights at the international and regional levels, including core international human rights treaties, their authoritative interpretation in general comments, statements, decisions, guiding principles, concluding observations and recommendations issued by international human rights mechanisms;

(c) Set out the normative framework that has emerged from the extensive work carried out to date in relation to human rights and the financial crisis, and provide specific guidance on how to apply the framework. That should include specific guidance on assessing economic reform policies with a view to: (i) identifying positive human rights impacts; (ii) preventing or mitigating adverse impacts on the enjoyment of economic, social, cultural, civil and political rights; (iii) identifying and preventing potential violations of the core minimum obligations relating to economic, social and cultural rights; (iv) screening economic reform measures against discriminatory impacts in law and in practice that are incompatible with international human rights law; (v) identifying impermissible retrogression of economic, social and cultural rights; and (vi) clarifying the circumstances in which certain retrogressive measures may be justifiable, based on the principles of necessity, proportionality, legitimacy and reasonableness;

(d) Be applicable to different circumstances in the context of acute financial crises, in less challenging economic times, in developing countries and in highly advanced economies;

(e) Ensure prompt consideration of various policy alternatives, beyond austerity measures, in response to fiscal constraints;

(f) Complement debt sustainability analyses with a view to integrating human rights impacts and social sustainability in the assessment;

(g) Provide guidance on and references to analytical approaches that could make visible the potential impacts of reform measures and show how the burden of adjustment is shared across different income quintiles, gender, age and different social groups, including the most marginalized;

(h) Ensure that the assessment of human rights impacts is based on qualitative and quantitative data, disaggregated by gender, disability, age group, region, ethnicity and any other relevant grounds, based on a contextual, country-level appreciation of groups at risk of marginalization;

(i) Provide specific guidance for carrying out cumulative, rights-based impact assessments of various reform measures that are often implemented in parallel as part of fiscal consolidation packages, such as taxation and public expenditure reform, so that the fuller impact on rights holders and particular groups at risk can be assessed;

(j) Set out an international standard and framework for conducting human rights impact assessments of economic reform policies that can be adjusted to the particular needs of government departments, advisory bodies, parliamentary committees, national human rights institutions, international financial institutions, international human rights mechanisms, academic institutions or civil society organizations;

(k) Include suggestions on how to integrate human rights impact assessments into existing assessment methodologies that governments, international financial institutions and other bodies may already be using;

(l) Consider the best way to carry out a human rights impact assessment in order to ensure that the results can effectively inform policy decisions, while at the same time address the independence and credibility of the assessment undertaken;

(m) Establish the criteria to be met by the assessment team;

(n) Provide guidance on how to ensure the meaningful participation of all relevant stakeholders and affected individuals and groups, including women, children, the elderly, persons with disability, migrants, minorities and other groups at risk of vulnerability, such as indigenous peoples, refugees and internally displaced persons;

(o) Set out the standards for transparency and accountability when carrying out the impact assessment and for the publication and reporting of information and the assessment;

(p) Recommend that human rights impact assessments be instituted and carried out regularly, before, during and after the implementation of economic reforms that may have the potential to cause significant adverse human rights impacts, and facilitate States' reporting obligations to the Committee on Economic, Social and Cultural Rights.

By Kanaga Raja.

Source: SUNS - South North Development Monitor #8619 - 12 February 2018.