Vatican City (AsiaNews) – One of the great themes that Pope Francis had indicated in the bull of invocation Spe non confundit for this year’s Jubilee, which is now halfway through its journey, was the debt of poor countries.
Although AsiaNews has already had the opportunity to look at how this issue has negatively impacted many areas of the world, very little is being said about it.
In various statements and appeals, Francis urged the countries with the most advanced economies to make significant gestures of solidarity towards countries unable to repay their debts in the spirit of the Jubilee, but he went one step further, hoping to see the Holy Year be an opportunity for a new “global financial architecture”, capable of fixing a broken system in which poor countries pay the price of international crises as UNCTAD repeatedly highlighted.
Pope Francis passed away on 21 April, but he left an important legacy in the form of the Jubilee Report, which was officially presented today at a workshop promoted by the Pontifical Academy of Social Sciences. A group of world-renowned economists worked on it over recent months, with a series of proposals to address this problem.
Nobel Prize winner for Economics Joseph Stiglitz, of Columbia University, led the group that carried out the project together with the Pontifical Academy of Social Sciences. The result was a 28-page blueprint that contains not only analyses and principles, but also very concrete technical suggestions on how to reform a broken global financial system that created a record US$ 97 trillion global debt in a world where 3.3 billion people live in countries forced to spend more on interest on their debt than on health and education.
The Jubilee Report is very clear in showing that many parties are responsible for the debt crisis. On the one hand, we have “Debtor governments that borrowed too much, often at too high rates and too short maturities;” on the other, we have “creditors that provided excessive financing, seeming experts on risk that knew they were lending under conditions that implied that there was a significant risk of default, but now, when the risks have materialized, are reluctant to provide the relief needed to restore debt sustainability; and international financial institutions (IFIs) whose lending policies enable these behaviors on both sides”.
This is why the report argues for HIPC 2 relief, a new extraordinary initiative by the international community for Highly Indebted Poor Countries, similar to the one in 1996 that culminated on the occasion of the Jubilee of 2000, when John Paul II launched a similar appeal.
But forgiving the debt of those who cannot repay it, says the Jubilee Report, is but the first step. To avoid finding ourselves periodically in this situation, certain mechanisms in today's distorted economy must be changed. In fact, in the existing financial system, risks fall more on poor countries than on rich ones.
“One might have thought that rich countries, being in a better position to absorb risk, would transfer risk away from developing countries. External capital flows would presumably help de-risk development and serve as a buffer. This is what standard economic theories of efficient markets would have predicted. But the opposite has occurred.”
When times are good, capital flows to developing countries; when turbulence strikes, it flees to advanced economies perceived as safer. “Capital mobility acts as a stabilizer for the Global North and a destabilizer for much of the Global South and the developing world.”
The real challenge, therefore, is to correct this distortion, something that is possible provided we accept, as Pope Francis put it, that "we are all in the same boat".
This is where a whole series of principles, rules and new institutions that the Jubilee Report suggests come into the picture. One example for all is the lack of international mechanisms for resolving a country's sovereign debt crisis.
"The most important reform would be the creation of an international bankruptcy court, akin to the bankruptcy court in most countries, for adjudicating fair and efficient debt resolution.”
Similarly, rating agencies must be reformed. Currently, they are private entities that have a preponderant role in defining the reliability of a country and therefore its interest rates. In its place, a public global rating agency that operates with transparent criteria could be set up.
More generally, two criteria should always be applied: never force a country already in crisis due to its debt to continue paying a creditor more money on past interests than it receives; give priority to everything that creates economic growth and development over austerity measures.
“Continuing to pay unsustainable debts may appear to avoid conflict in the short term, but it is, in reality, the worst of all possible paths. It perpetuates stagnation, erodes public trust, and destroys the hope that debt resolution should help to restore. It simply kicks the can down the road; delaying default leads to deeper economic and social crises, with even more adverse effects on the afflicted countries.”
Above all, the lack of a global consensus cannot be an alibi for immobility.
“It is urgent that those who share this spirit coalesce, that they form a coalition of the willing to work to relieve the stress so many developing countries face. They can provide funds, participate in meaningful debt restructurings, change laws, influence the multilateral institutions to change policies, form plurilateral institutions”.
Finally, “There is much to be done, and sometimes a smaller coalition of those with a shared mission can do even more than a universal group with powerful countries that are reluctant to take the right global collective action. Even in the current dark mood, there is reason for hope.”
