Policy Research in Macroeconomics

The Pope, Quincy Jones, Bono, Willie Colón – and the burden of sovereign debt

The Pope, Quincy Jones, Bono, Willie Colón – and the burden of sovereign debt.

On the eve of the 2019 annual meetings of the World Bank and IMF, we are once again alerted to a rise in the debt burdens of low-income countries. Last year the total external debt of both low- and middle-income countries climbed 5.3 percent to $7.8 trillion, while net debt flows (gross disbursements minus principal payments) from external creditors tumbled 28 percent to $529 billion, according to the World Bank’s International Debt Statistics.

In other words debt burdens worsened, while foreign creditors effectively switched the lending tap down to a trickle.

The sovereign debt crises of the poorest countries has shaped all my work on the international financial architecture. or system. An important part of my life was dedicated to a campaign to write off the unpayable debts of low-income countries – Jubilee 2000.

So this latest report, while not unexpected, is depressing. Its timing has revived memories of an event that took place exactly twenty years ago, with just 100 days to the millennium. It was an event which, while remarkable in itself, demonstrates that debt relief on its own, without structural change to the international financial system, means the debt burden of the poorest nations will always rise.

It was the 23 September, 1999. I was at Castel Gandolfo, the Pope’s summer retreat in a village outside Rome, and was leading a delegation whose purpose was to urge the Pope to use his influence to pressure world leaders. The demand was that the G8 cancel the unpayable debts of the poorest countries – by the millennium. It was an extraordinary delegation. Included was Professor Adebayo Adedeji, Nigerian economist, expert on debt and former United Nations Under Secretary General; Professor Jeffrey Sachs, at the time Director of the Centre for International Development at Harvard University; Mr Francesco Rutelli, Mayor of Rome; Randall Robinson, African-American lawyer, author and activist, Director of Trans Africa, Washington; Julian Filochowski, Director of the UK relief agency, CAFOD; the only other woman in the delegation, Laura Vargas, leader of the Jubilee 2000 Coalition in Peru; the legendary Quincy Jones, musician and producer of `We Are the World’; Willie Colón, a Nuyorican (a New York-born Puerto Rican) world-famous salsa musician and social activist; Bob Geldof, artist and founder of Live Aid; and Bono, lead singer of U2 – neither of the latter two need an introduction.

To our astonishment the apparently conservative Pope responded to our plea with a powerful, and radical statement, which began “debt relief is urgent …. We have to ask, however, why progress in resolving the debt problem is still so slow. Why so many hesitations? Why the difficulty in providing the funds needed even for the already agreed initiatives?

He warned that it “is the poor that pay the cost of indecision and delay.”

As we all know, the Pope is probably one of just a few figures known to every population in every part of the world. His statement, amplified by the voices of our glittering array of delegation members – went viral. Above all, it hit home – at the most powerful leader of the G8. As soon as the meeting in the Pope’s country retreat had ended, I joined Bono on a flight to Washington. We arrived in time for the start of the World Bank and IMF meetings, where Bono lobbied Bill Clinton’s team.

World leaders take turns at these events to deliver lengthy speeches, largely ignored by attendees, including yours truly. Thus late on 29 September, 1999 I was to be found lounging in a noisy bar with colleagues, sipping whiskey, jet-lagged and weary. Bill Clinton suddenly popped up on the screen, and the following words, unexpectedly, filtered into my addled brain through the noise and smoke:

“Today” he announced “ I am directing my administration to make it possible to forgive 100% of the debt these countries owe to the United States … when needed to help them finance basic human needs and when the money will be used to do so,” he told world financial leaders. Later, in a White House meeting with a diverse group of religious leaders and Members of Congress, President Clinton called on Congress to fully fund and authorize his international debt relief budget request.

Thus began a process of much-needed ‘debt relief’ – amounting (according to Gordon Brown at the time) to $100 billion in net present value terms by the end of 2000.

Magnificent though that success was, it did little to alleviate the structural problem facing poor countries: the absence of sound, publicly financed monetary systems for generating finance at a domestic level. Instead most low-income countries have to depend on finance from elsewhere. So dollar, yen, sterling or euro-based borrowing – increasingly from private capital markets – is the norm. And so is the inevitable rise in foreign debt burdens – a form of modern colonialism.

Transforming today’s modern colonialism deployed by ‘shadow banks’ and in the form of market-based finance – will take more than a delegation of distinguished economists and musicians,  and a strong Pope.

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