The Vatican’s meeting on the global debt crisis last week was not quite as celebrity-studded as the one that Pope John Paul II presided over 25 years ago, when he donned sunglasses given to him by Bono, U2’s lead singer.
But the message that the current pope, Francis, delivered this time — to a roomful of bankers and economists instead of rock stars — was the same: The world’s poorest countries are being crushed by unmanageable debt and richer nations need to do more to help.
Emerging nations are contending with a staggering $29 trillion in public debt. Fifteen countries are spending more on interest payments than they do on education, according to a new report from the United Nations Conference on Trade and Development; 46 spend more on debt payments than they do on health care.
Unmanageable debts have been a recurring feature of the modern global economy, but the current wave may well be the worst so far. Overall, government debt worldwide is four times higher than what it was in 2000.
Government overspending or mismanagement is one cause, but global events out of most nations’ control have pushed their debt problems into overdrive. The Covid-19 pandemic slashed business profits and worker incomes at the same time health care and relief costs were increasing. Violent conflicts in Ukraine and elsewhere contributed to rising energy and food prices. Central banks raised interest rates to combat soaring inflation. Global growth slowed.
Both popes linked their appeals to what they christened the Jubilee or holy year — a celebration rooted in the Bible and tied to a period when slaves were freed and debts were forgiven.
The 2000 Jubilee campaign was joined by an unlikely coalition of religious leaders, musicians, academics, evangelical conservatives, liberal activists and politicians. More than 21 million people signed petitions supporting debt forgiveness. It eventually resulted in an extraordinary global effort that eliminated more than $100 billion of debt from 35 poor nations.
Pope Francis revived the idea for the church’s 2025 Jubilee. Appointed cardinal in Argentina in 2001 at the height of the country’s financial collapse, Francis saw firsthand the misery and violent rioting that a debt crisis could cause.
He has called for a transformation of the global financial system in addition to loan forgiveness. “Let us think of a new international financial architecture that is bold and creative,” he said last week.
His speech was a recognition that this century’s debt problems are much more complicated than the previous one’s.
Today, the world’s public debt is not only larger, it is different.
Then, the debt was held largely by a handful of major banks from Western countries and decades-old international development organizations. Today, on top of those established players, countries must contend with thousands of private lenders and additional official creditors like China, as well as a variety of sometimes secret loan agreements governed by different national regulations.
Many economists and policymakers are coming around to the view that mechanisms and institutions, including the International Monetary Fund, that were created 80 years ago to deal with countries in financial distress are simply not up to the task anymore.
It’s like having a crackerjack television repairman who knows how to replace cathode ray tubes but not circuit boards.
Indermit Gill, chief economist at the World Bank, made a similar point this week as the bank released its latest global economic report, which warned of the crippling impact of debt at a time of slowing growth.
Debt relief “is the weakest part of the global financial architecture,” Mr. Gill said. Changes in borrowing, he added, “require a new debt restructuring framework which we don’t have in place yet.”
Rising frictions between China and the United States have made it more difficult to resolve debt crises. And there is no international referee with authority over all the lenders — the equivalent of a bankruptcy court — to adjudicate disputes.
Nor has funding for institutions like the I.M.F. kept pace with the expanding size of the global economy or the debt burden.
Martin Guzmán, a former finance minister of Argentina who also experienced the devastating impact of his native country’s debt crisis, was at the Vatican meeting last week. In his view, I.M.F. help is sometimes counterproductive, offering bailout loans, now with high interest rates, that end up increasing a country’s already burdensome debt.
He has also railed against the extra fees, or surcharges, that the fund imposes on struggling high-risk debtors, siphoning precious funds that could be used to provide health care and rebuild an economy.
The five largest borrowers — Ukraine, Egypt, Argentina, Ecuador and Pakistan — paid $2 billion alone in surcharges last year, according to the Center for Economic and Policy Research. On average, surcharges ended up raising the cost of borrowing for all affected countries by nearly 50 percent.
Other attempts have been made to ease the burden on indebted nations. Lawmakers in two global financial capitals, New York and London, have discussed proposals to improve the process of restructuring sovereign debt.
The New York State Legislature considered a bill to protect debtor nations from creditors, often called “vulture funds,” that buy up debt at a deeply discounted price and then hold up restructuring agreements to squeeze out more money.
The effort died last weekend when the Legislature adjourned, but it is likely to come up again during the next session.
In Britain, which oversees 90 percent of debt contracts for lower-income countries, Parliament has discussed measures like a lapsed 2010 law that would prevent private creditors from getting a better settlement than public lenders when debts are renegotiated with the poorest countries.
At the moment, the outlook for debt-ridden nations is grim given how slowly their economies are growing. Emerging nations do not have the money to pay for critical education, infrastructure, technology and health care. Roughly 60 percent of low-income nations are in or at high risk of debt distress, according to the I.M.F.
At the same time, trillions of additional dollars are needed to protect these vulnerable nations from extreme weather and enable them to meet international climate goals.
After returning from the Vatican conference, Joseph Stiglitz, a former chief economist at the World Bank, said that during the 2000 Jubilee debt campaign, “there was an optimism then that we had learned the lessons,” and that the debt forgiveness program would “solve the problem going forward.”
“It obviously hasn’t,” he said. “The problem has gotten much, much worse than we could have imagined 25 years ago.”