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Addressing the Global Debt Crisis in the Global South (press release)

June 5, 2024

Pontifical Academy of Social Sciences, Vatican

June 5, 2024

Vatican City

FOR IMMEDIATE RELEASE:

On June 5, 2024, Pope Francis called for the creation of a multinational mechanism for resolving the sovereign debt crisis that affects millions of people in the Global South:

“In the wake of mismanaged globalization, the pandemic and wars, we find ourselves faced with a debt crisis that mainly affects the countries of the global South, causing misery and distress, and depriving millions of people of the possibility of a dignified future. Consequently, no government can morally require that its people suffer deprivations incompatible with human dignity.

In order to break the debt-financing cycle, it is necessary to create a multinational mechanism, based on solidarity and harmony among peoples, that takes into account the global nature of the problem and its economic, financial and social implications. The absence of such a mechanism favors the mentality of ‘every person for himself or herself,’ where the weakest always lose… Let us think of a new international financial architecture that is bold and creative.”

The full text of Pope Francis’s speech is here.

The Pope delivered his call to action during a meeting of global economics experts, high-level public officials and leaders from financial institutions who came together at the Vatican to discuss how international institutions can address the growing sovereign debt crisis. The meeting is co-hosted by Initiative for Policy Dialogue (IPD), the think tank co-directed by Columbia University Professor and Nobel Laureate Joseph E. Stiglitz and Columbia SIPA Professor and former Economy Minister of Argentina Martin Guzman, and the Pontifical Academy of Social Sciences (PASS).

Since 2019, the number of countries facing debt distress has risen dramatically, as the global economy has experienced shocks from the Covid-19 pandemic and the ongoing war in Ukraine. An increasingly number of countries are at risk. The global sovereign debt crisis is a driver of global poverty and inequity, migration, political instability, and inadequate action on climate change.

Pope Francis has made resolving the debt crisis one of his priorities. The Vatican recently released Pope Francis’s calls for hope for the Church’s Jubilee Year of 2025, and they include asking the rich nations of the world to forgive debts, writing: “More than a question of generosity, this is a matter of justice.”

A selected list of participants at the June 5th IPD/PASS Vatican Conference:

High-level government officials: Carlos Cuerpo of Spain, Minister for Economy, Trade and Business; Fernando Haddad, Minister of Finance, Brazil; Emmanuel Moulin, Chief of Staff, Officer of the Prime Minister of France; Jay Shambaugh, Under Secretary for International Affairs, U.S. Department of the Treasury.

Leaders of major financial institutions: Nadia Calviño, European Investment Bank President; Jin Liqun, President of Asian Infrastructure Investment Bank; Pablo Saavedra, Vice President, The Equitable Growth, Finance Institutions Global Practice, The World Bank; Antoinette Sayeh, IMF Deputy Managing Director.

Experts: Joseph E. Stiglitz; Martin Guzman; Jayati Ghosh Professor, University of Massachusetts Amherst; Ishac Diwan, Paris School of Economics, Brad Setser, Senior Fellow, Council on Foreign Relations; Marcus Brunnermeier, Princeton University.

Leaders of international organizations and civil society organizations: Rebecca Grynspan, Secretary-General of United Nations Conference on Trade and Development; Albert Muchanga, Commissioner for Trade and Industry of the African Union Commission; Sebastián Ceria, Fundar.

See a complete list below.

At the Vatican, experts assessed the current global economic situation and discussed ways to address unsustainable sovereign debt burdens as a necessary first step for restoring growth in countries suffering debt crises as well as for global economic, social, and political stability. Unsustainable sovereign debts destabilize economies, leading to increases in unemployment, poverty, and inequality. Those consequences are long-lasting. In addition, IMF borrowers are also suffering the consequences of current rules that when countries increase their interest rates the IMF lending rate increases proportionately.

Participants agreed that global leaders must take immediate action to reform the international financial architecture and that global coordination is needed to achieve a more fair and equitable system. Participants discussed concrete proposals on how to reform the role of international financial institutions (including the IMF and the MDBs) to make them fit for purpose in the current global economic order.

Among the concrete proposals discussed:

  • Seize momentum to revise the procyclical IMF Lending Rate policy, including an elimination or reduction of the surcharges.
  • Enhance the role of SDRs as a tool for development and climate finance.
  • Coordinate efforts in the current international tax system, to improve wealth distribution and reduce inequality across the world.
  • Change New York State legislation to improve sovereign debt markets, including the reenactment of the champerty law, and reduce the compensatory interest rate in debts in default prejudgment, which has been at 9% since 1981 and distorts incentives of creditors to participate in sovereign debt restructurings.

Quotable:

Carlos Cuerpo, Minister for Economy, Trade and Business, Spain: “The international community needs to come together to address long term investment needs for sustainable development, building on the existing architecture and mobilizing all available resources. Spain is doubling its contribution to the IMF’s RST and championing the use of SDR via the IMF-World Bank enhanced cooperation framework to bolster climate resilience. Tangible progress going forward is key to keep our citizenship engaged.”

Jay Shambaugh, Under Secretary of the U.S. Treasury for International Affairs: “Addressing debt overhangs for developing economies, and making the international financial system work better for global growth, is a core priority for President Biden and Secretary Yellen, as evidenced by the recent Nairobi-Washington Vision statement. Today’s event was an important opportunity to make progress on the challenge of fostering sustained and substantial financial flows to build a stronger and more resilient global economy.”

Nadia Calviño, President of the European Investment Bank: “The European Investment Bank has a key role in supporting vulnerable countries to address debt problems, financing massive investments in the areas of health, education and enabling to improve their capabilities. We are contributing to the network of Multilateral Development institutions to make sure we are more effective and faster. Many measures are being taken and now we need to accelerate and scale up solutions.”

Daouda Sembene, Founder and CEO, AfriCatalyst: “Addressing debt in the Global South is of paramount importance if we want to make any progress toward mitigating climate change and global challenges like hunger and pandemics.”

Sister Helen Alford, PASS Academician: "The Pope reminds us in Spes non confundit that we all need forgiveness, and continues by saying: "Forgiveness does not change the past . . . yet it can allow us to change the future" (n.23); if we can find the courage to forgive, implementing the technical solutions for debt forgiveness that have been discussed at the Pontifical Academy of Social Sciences here in Rome today, we can change the future, building solidarity and laying the foundations for a more life-giving international order."

Joseph E. Stiglitz, Co-President, Initiative for Policy Dialogue, Columbia University; Nobel Laureate in Economics: “The world is on the verge of a sovereign debt crisis, with too many countries facing too much debt. The crisis has become especially severe since the Covid-19 pandemic and the start of the war in Ukraine, both major shocks to the global economy that have brought inflation and the unprecedented rapid increase in interest rates. Compassion and self-interest in a well-functioning global financial system make action an imperative. We need a Jubilee debt restructuring and a re-ordering of our global economic architecture to make sure that it doesn’t happen again.

Developing countries need more money if they are to join in the fight against climate change and raise the living standards of their people. But a mountain of debt is holding them back—forcing the poorest to send massive checks to the rich countries. There must be a better way forward. The Pope’s message and this convening has provided hope that we can and will find that way.”

Cardinal Peter K.A. Turkson, Chancellor of The Pontifical Academy of Sciences: “The debt crisis has a human face: it is caused by people and it affects the lives of vulnerable people. Accordingly, it impacts also the human rights of people. Our search for international frameworks to facilitate the prevention and resolution of sovereign debt crises must ultimately be guided by charitable hearts, born out of a sense of a fraternal solidarity, which the Jubilee Year 2025 invites us to celebrate! (Dt.15:4)”

Martin Guzman, Co-President, Initiative for Policy Dialogue, Columbia University; former Economy Minister of Argentina: “There are concrete reform proposals that could be immediately implemented and would improve stability in countries suffering debt crises.

The IMF could immediately eliminate or reduce surcharges, which penalize middle income countries suffering long-lasting and deep crisis and exacerbate their troubles — income that today the Fund uses to accumulate reserves.

Almost half of outstanding global sovereign debt bonds are governed by New York State. The New York Assembly could reduce the 9% interest rate that applies to pre-judgement debts in default and could reenact the champerty clause that prohibited the purchase of debts in default with the intent of litigating against the debtor. Eliminating champerty in 2004 fostered the proliferation of vulture funds that destabilize restructuring processes. Reducing the current 9% interest rate and reenacting the champerty clause would change creditors’ incentives to participate in debt restructurings when they are needed.

Ultimately, we should aspire to the creation of an international mechanism for orderly sovereign debt crisis resolution.”

Jayati Ghosh, Professor of Economics at University of Massachusetts: “Sovereign debt stress in low- and middle-income countries is increasing poverty and insecurity and even causing economic havoc, because debt repayments are often more than spending on basics like health, nutrition and education. This matters for everyone in the world, even if such crises don't currently threaten global financial instability, because they can generate dangerous social and political instability. So, it's an ethical concern, but also a very practical concern.”

A list of IPD/PASS Conference participants:

Miguel Andres Anzola

Economic Affairs Officer, Office of the Secretary-General, UN Trade and Development

Reza Baqir

Managing Director and Global Practice Leader of Sovereign Advisory Services, Alvarez & Marsal

Roberto Barbieri

Director General, Oxfam Italia

Gustavo Béliz

Executive Committee Council on International Relations, Argentina

Jason Braganza

Executive Director, African Forum and Network on Debt and Development

Markus Brunnermeier

Professor, Princeton University

Lee Buchheit

Honorary Professor, University of Edinburgh Law School

Nadia Calviño

President, European Investment Bank

Roberto Manuel Carlés

President, Foundation Laudato Si

Sebastián Ceria

Founder and President, Fundar

Anir Chowdhury

Policy Advisor, Government of Bangladesh

Alejandra Claros

Secretary-General, CAF - Development Bank of Latin America and the Caribbean

Emilce Cuda

Secretary, Pontifical Commission for Latin America, Roman Curia; Ordinary Academician, The Pontifical Academy of Social Sciences

Carlos Cuerpo

Minister for Economy, Trade and Business, Spain

Ishac Diwan

Research Director, Finance for Development Lab, Paris School of Economics

Jamie Drummond

Co-Founder, ONE; Founder, Sharing Strategies

Jayati Ghosh

Professor, University of Massachusetts Amherst

Leone Gianturco

Head of the Foreign Debt and Financial Cooperation Office, Ministry of the Economy and Finance, Italy

Rebeca Grynspan

Secretary-General, United Nations Conference on Trade and Development

Martín Guzmán

Professor, Columbia University; Co-President, Initiative for Policy Dialogue; Ordinary Academician, The Pontifical Academy of Social Sciences

Fernando Haddad

Minister of Finance, Brazil

Jeff Hall

Director of Advocacy, International Financial Institutions and Climate Justice, Open Society Foundations

Michael Hugman

Global Director, Climate, Children's Investment Fund Foundation

Martin Kessler

Executive Director, Finance for Development Lab, Paris School of Economics

Ewa Korczyc

Lead Economist, The World Bank

Eric Lecompte

Executive Director, Jubilee USA Network

Jin Liqun

President and Chair of the Board of Directors, Asian Infrastructure Investment Bank

Serah Makka

Africa Executive Director, ONE

H.E. Florence Mangin

Ambassador of France to the Holy See

Iyabo Masha

Director, Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development

Mahmoud Mohieldin

Executive Director for the Arab States and the Maldives, International Monetary Fund

Emmanuel Moulin

Chief of Staff, Office of the Prime Minister of France

Samy Muaddi

Head of Emerging Markets Fixed Income, T. Rowe Price Group

H.E. Albert Muchanga

Commissioner for Economic Development, Commissioner for Trade and Industry, African Union Commission

Binaifer Nowrojee

President, Open Society Foundations

Fazia Pusterla

Representative in Europe, Inter-American Development Bank Group

Rahul Rekhi

Counselor for International Affairs, U.S. Department of the Treasury

H. E. Julissa Reynoso

U.S. Ambassador to Spain and Andorra

Pablo Saavedra

Vice President, The Equitable Growth, Finance and Institutions Global Practice, The World Bank

Guido Sandleris

Professor, Universidad Torcuato Di Tella and Johns Hopkins University

Antoinette Sayeh

IMF Deputy Managing Director

Japhet Sayi

Commissioner, Sovereign Debt Management, Ministry of Finance, Tanzania

Jade Scarfe

Project Manager and Communication Assistant, Development Reimagined

Jolie Schwarz

Senior Program Officer, Development Policy & Finance, Bill & Melinda Gates Foundation

Daouda Sembene

Founder and CEO, AfriCatalyst

Brad Setser

Senior Fellow, Council on Foreign Relations

Jay Shambaugh

Under Secretary for International Affairs, U.S. Department of the Treasury

Damon Silvers

Policy Director and Special Counsel, The American Federation of Labor and Congress of Industrial Organizations

Vera Songwe

Senior Fellow, Global Economy and Development, Africa Growth Initiative, Brookings Institute

H.E. Msgr. Marcelo Sorondo

Chancellor Emeritus, The Pontifical Academy of Social Sciences

Joseph E. Stiglitz

Professor, Columbia University; Founder and Co-President Initiative for Policy Dialogue; Honorary Academician, The Pontifical Academy of Social Sciences

Triki Thouraya

Director of International Partnerships, European Investment Bank Global Directorate

H.Em. Cardinal Peter Turkson

Chancellor, The Pontifical Academy of Social Sciences

Mark Weisbrot

Co-Director, Center for Economic and Policy Research

Stefano Zamagni

Professor, University of Bologna and Honorary Academician, The Pontifical Academy of Social Sciences

To learn more about the conference or the global debt crisis, please contact Meaghan Winter at [email protected]

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