GOVERNMENTS and international institutions could prevent multiple future crises by restructuring or forgiving the debts of developing countries, according to a report commissioned by the late Pope Francis for the Roman Catholic Church’s current Jubilee Year.
“A debt crisis should not be narrowly defined as a matter of countries defaulting on their obligations to creditors — for many nations, the real default is not a legal or financial one, but a social and development one,” the report, written by a commission of 30 global experts, says.
“To meet obligations to their external creditors, debt-distressed countries are sacrificing investments in education, healthcare, infrastructure and climate resilience. Core aspects of national sovereignty are put into question as economic policy serves creditors rather than citizens.”
The 30-page report, produced jointly by the Vatican’s Pontifical Academy of Social Sciences and Columbia University, New York, argues that indebted governments have often failed to protect their citizens by “prioritising the short term” and borrowing too much on high interest.
Many lending governments were now reacting by repudiating the “sustainable development goals” agreed in 2015 by the United Nations, fuelling “poverty, malnutrition and labour market exclusion”, as well as social fracturing and family breakdown in poorer countries.
“Resolving a sovereign debt crisis is a deeply political and moral undertaking — it is, at its core, a question of how losses are distributed across societies, generations and international actors”, the authors write. The report was requested by Pope Francis in February, and released by the Vatican last weekend.
“Continuing to pay unsustainable debts may appear to avoid conflict in the short term, but is, in reality, the worst of all possible paths. It perpetuates stagnation, erodes public trust and destroys the hope that debt resolution should help restore,” it says.
The authors — a commission of experts — include the Nobel laureate Joseph Stiglitz, and the Argentinian former Economy Minister, Martin Guzman, as well as Professor Patrick Bolton, from Imperial College, London, and Professor Daniela Gabor, from the University of the West of England.
The report says that “debt distress” is currently harshest in Africa, where public debt has grown faster than GDP since 2013, in a “concentration of poverty and underdevelopment” which calls into question “universal norms of human rights and anti-racism”.
It adds that climate change poses an additional “crushing burden on developing countries”, threatening “not only their economies but their very existence”.
“Today, 3.3 billion people live in countries that spend more on interest payments than on health, and 2.1 billion live in countries that spend more on interest payments than on education,” the report says.
“Interest payments on public debt are crowding out critical investments in health, education, infrastructure, and climate resilience. . . This is not a path to sustainable development. Rather, it is a roadblock to development and leads to increasing inequality and discontent.”
Campaigning by Christian Churches helped to secure the cancellation of up to £80 billion in international debt around the year 2000, but failed to alleviate systemic vulnerabilities, which are widely believed to have worsened in face of current world problems.
Pope Leo has pledged to continue seeking a more ethical approach to international debt, deploring “an economic paradigm that exploits the earth’s resources and marginalises the poorest” at his pontifical inauguration on 18 May (News, 23 May).
The commission said that it had been tasked with advancing “a reimagined international financial architecture” capable of “preventing future crises”, and with combining “sound economic expertise with the moral responsibility to act”.
There are grounds for hope, it found, “even in the current dark mood”, that 2025 could still become “a true Jubilee of multilateralism”.
Among concrete proposals, the report calls for an extension of Covid-era debt-relief initiatives, and short-term bridging loans, through a “coalition of the willing”.
It also recommends a bankruptcy process for countries in debt crisis, and an end to “bailing out private lenders with public money, to encourage them to stop lending recklessly”.
“Development inherently involves risk . . . while sustainable development requires these risks to be distributed globally in an efficient and equitable manner”, the report continues. It is to be debated at an upcoming international conference on development finance in Seville, and at autumn meetings of the G20 and UN General Assembly.
“In the absence of a global legal framework for sovereign debt restructurings, the possibility of just debt-resolutions depends, in large part, on the will of all, including the most powerful, to act in the spirit of solidarity. We write at a time when the absence of such a spirit is all too evident, at least on the part of some. But that should not stop us.”