(LifeSiteNews) — For decades the cruelest part of the global financial system has been the impoverishment of economically weaker countries due to unsustainable debt. Last February, Pope Francis convened the Jubilee Commission, an international panel of economists, legal scholars, and development academics, to address the issue and reimagine the global financial architecture so that it better serves countries trapped in a cycle of dependency. The aim was to outline the “financial foundations for a sustainable people-centered global economy.”
The panel has released its findings in The Jubilee Report – the title a reference to 2025 being a Jubilee Year for the Catholic Church, a tradition of institutional renewal dating back to the Jewish practice of periodically forgiving all debts. The implication, although not stated, is that there should be some cancelation of the developing world’s debt.
The report meticulously details the way the financial markets have forced the leadership of indebted nations to service interest on loans at the expense of spending on education, health, and infrastructure. For those concerned about international economic injustice, this is a good place to identify the principal mechanism of exploitation and unfairness.
Yet it is what the report does not include that is most telling. The problem is not the type of debt, or its configuration, although the report does point out that the so-called vulture funds that prey on financial weakness in the developing world are especially pernicious. The problem is debt itself.
Why do international financial institutions like the International Monetary Fund (IMF) and World Bank, which are supposedly tasked with improving economic development in poorer countries, only lend? Why do they never provide equity capital (stock markets are based equity) that does not have an interest rate on it?
These institutions repeatedly pretend to solve the problem of excessive debt by increasing the debt – with predictable consequences. It is not that they do not understand the problem. This writer had a conversation with a senior representative of the IMF in Papua New Guinea who said they were exploring ways of providing equity capital rather than more debt to PNG because there was a realization that a new way had to be found. It is yet to happen, however.
If poorer countries received equity capital they would not get trapped by the compounding of the interest payments and would be far less likely to suffer currency collapses which destroy their ability to pay debt denominated in a foreign currency. Yet there is no consideration of this possibility in the report. The only mention of the word “equity” is in relation to social equality.
It is true that providing equity instead of debt would require significant investment in the financial architecture of developing nations. A higher level of trust is required, and there would need to be a preparatory effort to build up governance systems if local stock markets are to be used. But if the trust can be created that in itself would be massively beneficial to the country’s financial system and wider society.
READ: Trump admin halts USAID birth control to global NGOs, will destroy Biden-era stockpiles
Another avenue is to foster cooperatives, which would also require sound governance. There are two examples in the West that could provide pointers. One is the Mondragon Corporation system of worker-owned co-operatives in Spain, which is equity based. The other is New Zealand’s Fonterra, which is ranked as the sixth largest dairy company in the world and is funded by equity capital.
An advantage of equity capital markets is that, unlike debt markets, they do not break when there is a negative repricing. This is because equity markets price the future whereas debt markets typically price the present. It is why problems in debt markets, the kind that routinely afflict developing nations, are so damaging. Equity capital acts a bit like a shock absorber because stock markets usually bounce back after a correction. Debt does not. When things get bad in markets subject to compound interest, the system ultimately breaks, something that has occurred for thousands of years.
Another advantage of equity capital is that it is easier to develop local industries and harder for foreign corporations, especially in the extraction industries, to take the profits out of the country. In an especially vicious twist, these profits are often “returned” to the country in form of loans, a device especially favoured by European banks. It is essentially theft twice over.
The second absence in the Jubilee report is a moral issue. There is no reference to an important element in Christian moral teaching: the long standing admonition against usury. This is no doubt a tactical decision, a way of staying within the bounds of policy pragmatism and avoiding being overtly theological or confrontational. But it reveals the gravitational pull of the existing order. The report stops short of indicting the system’s moral logic, which impedes the ability to imagine an alternative.
The report says: “the purpose here … is not to assess blame” for the damaging effects of the financial markets. One wonders, Why not? By taking the view that it is just a matter of correcting errors in the system, as if the people involved have no choices, the report is inadvertently falling into the trap of seeing the financial architecture as principally a numbers-driven machine, rather than made up of human beings making decisions. That is not the way to find a more “people-centred” approach.
Providing moral leadership on usury has the potential to at least limit some of the worst behavior. Many of the people involved in causing damage to developing countries are Catholics, and they may be moved to exercise their consciences.
The Catholic Church has never deviated from considering usury a sin, although there is an acceptance that some lending with interest is acceptable provided the rate is not excessive, however that is defined. But this concession only focuses on the interest rate, not the size of the debt.
When the amount of debt gets sufficiently large, as is repeatedly the case in the developing world, the effect is crippling even if the interest rate is low. Similar problems can be seen in developed countries such as Australia, Canada, and the UK, where uncontrolled bank lending has created house price bubbles that have burdened younger people with ridiculously large mortgages and distorted entire societies.
The Jubilee report does a comprehensive and rigorous job of describing the depth of the problem and proposing tweaks within the existing system. It notes that “dysfunctional behaviour reflects deeper flaws in the architecture of global finance,” especially “misaligned incentives.”
That is surely true, but what is required is something from outside the existing architecture. For all its language about “people-centred” economies, the report remains firmly within the current paradigm of development economics, as if justice might emerge from better calibration alone.
It is unarguably an important contribution to helping the world’s vulnerable and the fact that the Vatican has weighed in is symbolically important. But there is still an adherence to the assumptions behind the financial systems of the global North where debt, even when ruinous, is normalized. That tends to preclude the application of the moral imagination, which is essential if there is ever to be some justice.
