Global Debt Crisis: It is also a development and climate crisis

The Pontifical Academy of Social Sciences and the Initiative for Policy Dialogue publish proposals to combat the debt crisis plaguing the world.

Last year, the International Monetary Fund reported that more than half of low-income developing countries are in or at high risk of debt distress. More than 3 billion people live in nations that spend more on debt and interest payments than on education.

Vatican encounter

In June 2024, the Vatican, with the goal of discussing solutions to this growing global debt crisis, hosted a meeting with financial institutions, academic experts, civil society advocates, and religious figures.

In an interview with Vatican News, Martin Guzman, the Former Minister of the Economy of the Republic of Argentina who is a member of the Pontifical Academy of Social Sciences (PASS), explained the meeting was organized “in dialogue with Pope Francis, who very much cares about these issues.”

Six months later, PASS and the Initiative for Policy Dialogue (IPD) published their proposals for “international financial architecture reforms,” which would promote debt sustainability across the Global South.

The cost of debt

Speaking with Vatican News, Professor Joseph Stiglitz, founder of the IPD, explained that following the COVID pandemic and in the midst of the war in Ukraine, the cost of servicing the debt is overwhelming. He described the situation as “more than a debt crisis. It’s a development crisis.”

Without the presence of an international mechanism to monitor and resolve it, the IPD highlighted that international financial institutions may prioritize bailing out private lenders when debts become unsustainable instead of urging a restructuring of the debt.

For the millions of people living in countries who prioritize debt repayment, Professor Stiglitz described it as “taking food out of babies' mouths.”

So many developing countries have very limited funds and ways of raising revenue, and thus primary care, vaccines, and children’s education fall by the wayside.

Proposals for international debt

The IPD and PASS joint document listed more than 10 proposals to combat the debt crisis: ranging from stopping the outflow of resources from countries in debt to properly defining “access to credit market.”

One of the proposals was a topic Pope Francis brought up during the meeting in June—the creation of an international mechanism for sovereign debt restructuring. Moreover, the Pope challenged financial leaders to “follow an international code of conduct with ethical standards that can guide dialogue between parties.”

For Professor Stiglitz, this call to the international community is essential because the debt crisis today “with the particular form, with bonds and, the particular manifestation of that, is new.” Thus, Guzman added, the only way to address this new crisis is through a new global architecture—one that is favourable to “financing for development.”

But, what would be required to achieve this international mechanism is placing an emphasis on social justice rather than maximizing incomes. The IPD founder explained a political challenge in implementing their proposals, would be the exploitation of developing countries.

Debt resolution named among Church’s priorities

With the theme of the Jubilee being hope, Pope Francis has included debt resolution as a top priority for 2025. During the year, IPD and PASS will work on putting their proposed reforms for sustainable financing into action. The goal is to “have more work and engagement in the context of the year of the Jubilee,” Mr. Guzman said.

In his letter for the World Day of Peace—commemorated on January 1—the Pope chose the theme, “Forgive Us Our Debts, Grant Us Peace.” One of his proposals to set countries on the “path to peace” involves “two sides of the same coin,” that is, foreign and ecological debt.

Professor Stiglitz highlighted Pope Francis’ important role in the debt crisis.

“There's a particular shortage of moral global leadership as opposed to a strong-arm political leadership,” he observed, underscoring, “Pope Francis provides that kind of global moral political leadership.”

Kielce Gussie
Source: vaticannews.va/en