Vatican Backs Report Calling for Financial Reforms to Alleviate Global Debt Crisis

The document reports that more than 50 developing countries already allocate more than 10% of their tax revenues to interest payments, a dynamic that diverts financial resources from vital sectors such as health, education, and climate resilience (the capacity to respond to climate change or extreme weather events.)

“The debt crisis that is suffocating the global financial system is also fueling a development crisis,” the report states.

It proposes a series of measures and recommendations to transform the international financial system into an instrument of justice and sustainability. These include the creation of an international bankruptcy mechanism for sovereign countries similar to those that exist for private companies; an end to government bailouts for private investors; and the provision of bridge loans and short-term financial support for countries in crisis.

Foreign debt forgiveness, St. John Paul II’s legacy

The initiative is part of the spirit of the jubilee year, traditionally associated with mercy and debt forgiveness. In fact, in the 2024 papal bull Spes Non Confundit, Pope Francis expressly asked governments to show clemency by extraordinary measures, such as forgiving the external (foreign) debt of poor countries.

The June 20 report recaptures the spirit of the Jubilee of the Year 2000, when in 1997, St. John Paul II initiated a truly global movement based on the Church’s social teaching that called for debt relief for the poorest countries. That call gave rise to the “Jubilee 2000” campaign, which collected millions of signatures around the world and mobilized religious communities of all traditions. Thanks to this movement, more than $100 billion in debt was canceled.

“Global finance must serve people and the planet — not punish the poorest to protect profits,” the report concludes.

Presentation at the Pontifical Academy of Social Sciences

The report was presented June 20 at the Pontifical Academy of Social Sciences during a day dedicated to discussions about how reforms to international financial systems could move toward a truly people-centered system.

Nobel Prize-winning economist Stiglitz, professor at Columbia University and honorary fellow of the Pontifical Academy of Social Sciences, issued a forceful call to “curb the abuses of large private creditors.”

“Normally, we talk about shared responsibility between creditors and debtors, but I would say there is greater responsibility on the part of creditors. These are voluntary transactions. No one has forced creditors to lend money, and they are supposed to be the experts in risk analysis,” he stated in his remarks.

Reducing interest rates with multilateral development banks

The economist was particularly critical of BlackRock and other large funds, which, he said, encourage a type of high-risk lending that ends in crises.

He therefore advocated strengthening the role of multilateral development banks, which can provide loans at lower rates, something that “would help reduce interest rates and make debt sustainable.”

Within the framework of the international meeting on debt, social justice, and development held at the Pontifical Academy of Social Sciences headquarters, Caritas International representative Alfonso Apicella urged that the technical debate on debt never lose sight of the people most affected.

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“We’re here to talk about sustainable growth, but the real question is: sustainable growth for whom? That’s the question we’re asked time and again by communities when we launch campaigns like ‘Turn Debt Into Hope,’” he explained.

Speaking on behalf of the global network of 162 organizations that make up Caritas, Apicella emphasized that the discourse on “sustainability” runs the risk of becoming an empty slogan if its inclusive focus isn’t made explicit: “We have to talk about sustainable growth for all, not just a few. And we must always remember this, especially when we speak from a technical perspective, because behind every figure there are people who experience these realities firsthand.”

A change in the narrative on debt

Apicella also focused on the need to change the narrative on debt: “We must frame this fight for debt justice as a win-win situation. If we work for the poor, policymakers must understand that they will also benefit.”

Professor Kevin Gallagher, director of the Global Development Policy Center at Boston University, pointed to international organizations such as the International Monetary Fund that have forced poor countries to “prematurely open their capital accounts.”

However, he also acknowledged the internal responsibility of many developing countries that, as the report notes, “have borrowed too much and invested too little.”

In any case, he made it clear that while “debt relief is essential,” it is also necessary to propose viable implementation measures within the current international environment that transform the financial system.

“We have already learned from the last jubilee debt forgiveness in 2009 that debt relief without reforms to the international financial architecture will only lead us to repeat this whole process. It’s a shame that we are in this situation again. Let us not repeat the same mistakes,” Gallagher said.

This story was first published by ACI Prensa, CNA’s Spanish-language news partner. It has been translated and adapted by CNA.