TheJubileeReport

ABlueprintforTacklingtheDebtandDevelopmentCrisesand

CreatingtheFinancialFoundationsforaSustainable

People-CenteredGlobalEconomy

CommissionedbyPopeFrancis

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ThecontentofthisreportisidenticaltothecontentofthereportpublishedbythePontificalAcademyofSocialSciences(PASS).However,theformattinghasbeenadjusted,sopaginationmaydiffer.

I.Introduction

Thedevelopingworldisfacingdramaticdebtanddevelopmentcrises.Adebtcrisisshouldnotbenarrowlydefinedasamatterofcountriesdefaultingontheirobligationstocreditors.Formany

nations,therealdefaultisnotalegalorfinancialone,butasocialanddevelopmentone:Theyaredefaultingontheirpeople,theirenvironment,andtheirfuture.Thehistoriccommitmentsmade

in2015withtheSustainableDevelopmentGoals(SDGs),solemnlyresolvedbytheUNGeneralAssembly,arebeingvoided.Inthecurrentgeopoliticalcontext,theyarebeingrepudiatedbymanygovernmentsinpractice,andbysomeeveninprinciple.

Tomeetobligationstotheirexternalcreditors,debt-distressedcountriesaresacrificinginvest-

mentsineducation,healthcare,infrastructure,andclimateresilience.Coreaspectsofnational

sovereigntyareputintoquestionaseconomicpolicyservescreditorsratherthancitizens.Nationalpoliticsisdelegitimizediffiscalandfinancialpoliciesareintheserviceoffinanceratherthanintheserviceofdevelopment.

Unresolveddebtcriseshavebothshort-andlong-termadverseeffectsonhumandevelopment.Inthefaceofsustaineduncertainty,aggregatedemandandeconomicactivitytypicallydecline,lead-ingtorisingpoverty,malnutrition,andlabormarketexclusion.Vulnerablefamiliesaremorelikelytobreakdown,andtheerosionofhopespreadsacrosscommunities.Humanandphysicalcapitaldeteriorates,undermininglong-termdevelopmentprospectsanddeepeningsocialfractures.

Allsidesshareresponsibilityforthecurrentdebtsituation:Debtorgovernmentsthatborrowed

toomuch,oftenattoohighratesandtooshortmaturities,failedtoadoptcapitalaccountregula-tionstodeterdestabilizingspeculativeflows,prioritizedtheshortterm,andnowarenotdoingalltheycouldbetoresolvetheirdebtcrises—typicallyshyingawayfromtheinternational“fights”

thatmayberequiredtoprotecttheircitizensfromexcessivedemandsoftheircreditors;creditorsthatprovidedexcessivefinancing,seemingexpertsonriskthatknewtheywerelendingunder

conditionsthatimpliedthattherewasasignificantriskofdefault,butnow,whentheriskshave

materialized,arereluctanttoprovidethereliefneededtorestoredebtsustainability;andinterna-tionalfinancialinstitutions(IFIs)whoselendingpoliciesenablethesebehaviorsonbothsides—

policiesthatputoffdealingbothwithtoday’sdebtandwiththeunderlyingflawsinaglobalfinan-cialarchitecturethatrepeatedlygivesrisetosuchdevelopmentanddebtcriseswhileanentire

generationintheaffectedcountriesloseshopefordevelopment.

Thereisalsoabroaderreasonforthedebtsituation—theinternationalcommunityfailedto

addresstheflawsintheglobalfinancialarchitectureandtoenableandemboldentheIFIstotakestrongermeasurestopreventandresolvetheserecurrentdebtanddevelopmentcrises.

TheconsequencesareparticularlyacuteinAfrica,wheredebtdistressismostsevere.ItistheonlyregionwherepublicdebthasbeengrowingfasterthanGDPsince2013.Approximately57%of

thecontinent’spopulation—751millionpeople,includingnearly288millionlivinginextremepoverty—resideincountriesthatspendmoreonservicingexternaldebtthanoneducationorhealthcare.Giventhelegaciesofslavery,colonialism,andanti-Blackracism,theconcentrationofpovertyandunderdevelopmentinAfricacallsintoquestionthesincerityofourcollective

commitmenttouniversalnormsofhumanrightsandantiracism.Withitsrapiddemographicgrowth,Africaholdsuniquesignificanceforthecomingdecades,asitsshareoftheglobalyouth

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population(aged15to24)isprojectedtorisefrom23%in2023to35%by2050,accordingtotheUNWorldPopulationProspects.

Furthermore,climatechange—acrisisbornlargelyofhistoricalemissionsfromadvancedecono-mies—isimposinganadditional,crushingburdenondevelopingcountries.Theconsequencesofclimatechangeareespeciallydevastatingforsmallislandstatesandlow-incomenations,which

havecontributedtheleasttoitbutsufferthemostfromitseffects.Risingsealevels,extreme

weatherevents,andecologicaldegradationthreatennotonlytheireconomiesbutalsotheirveryexistence.Thisinjusticeiscompoundedbythestarkdisparityinconsumption:Itisthewealthiestindividualsandnations—thosewiththehighestcarbonfootprints—whohavecontributedmosttotheclimatecrisiswhilethepoorest,whoconsumeleast,endurethegravestconsequences.Itisaprofoundinjusticethatthoseleastresponsiblearenowpayingthehighestprice.

Inresponsetothisurgentrealityofdebt,development,andclimatecrises,agroupofleading

expertsindebt,development,andtheglobalfinancialsystemcametogetherattherequestofPopeFrancistoformaJubileeCommissionfortheyear2025.Aquartercenturyago,ontheoccasionofthelastJubilee,PopeJohnPaulIIadvocatedfordebtrelieffortheHighlyIndebtedPoorCoun-

tries(HIPC).Intheyearsthatfollowed,large-scaledebtreductionswereachievedthroughthe

HIPCInitiativeandtheMultilateralDebtReliefInitiative,bringingenormousbenefitstomanylow-incomecountries.Butnow,twenty-fiveyearslater,theworldconfrontsanotherdebtcrisis,

andtosolveitrequiresdeeperandlonger-lastingreformsoftheglobalfinancialarchitecture.

PopeFrancisagaincalledforsolutionsthatwillrequiredebtrelief,butaskedformore:forreformsoftheglobalfinancialsystem.

TheCommission’spurposeistwofold:first,toofferpracticalandprincipledrecommendations

toaddressthecurrentcrises;second,toadvanceavisionforareimaginedinternationalfinancialarchitecturethatiscapableofpreventingfuturecrisesandenablingsustainable,inclusivedevelop-ment.TheCommissionaffirmsthatdevelopmentinherentlyinvolvesrisk—whetherfromlong-

terminvestments,exposuretocommoditypricefluctuations,orvulnerabilitytoexternalshocks—andthatsustainabledevelopmentrequirestheseriskstobedistributedgloballyinanefficientandequitablemanner.Theburdenshouldbebornebythosemostcapableofabsorbingit,whichisnotwhatthecurrentsystemdelivers.

ThisreportmarksthefirststepinabroaderinitiativeconvenedbythePontificalAcademyof

SocialSciences(PASS)andColumbiaUniversity’sInitiativeforPolicyDialogue(IPD).Itseekstocontributetoacomprehensiverethinkingoftheglobalrulesgoverningfinance,taxation,trade,

andthesharingofknowledge.Atitsheartliesaclearandurgentgoal:tohelpbuildaglobalecon-omythatservespeople,especiallythemostvulnerable,andtrulyleavesnoonebehind.

“Thedevelopmentofaglobalcommunityoffraternitybasedonthepracticeofsocialfriendshiponthepartofpeoplesandnationscallsforabetterkindofpolitics,onetrulyattheserviceofthecommongood.”

—PopeFrancis,FratelliTutti,§154

II.TheCurrentDebtSituationinDevelopingCountries

Thefiscalnumbersforthedevelopingworldpaintastarkpicture:AccordingtotheUnited

NationsConferenceonTradeandDevelopment(UNCTAD),54developingcountriesnowspend10%ormoreoftheirtaxrevenuesjustoninterestpayments.Since2014,theaverageinterest

burdenfordevelopingcountries—measuredasashareoftaxrevenues—hasalmostdoubled.

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Today,3.3billionpeopleliveincountriesthatspendmoreoninterestpaymentsthanonhealth,

and2.1billionliveincountriesthatspendmoreoninterestpaymentsthanoneducation.Inter-

estpaymentsonpublicdebtarethereforecrowdingoutcriticalinvestmentsinhealth,education,infrastructure,andclimateresilience.Governments—fearfulofthepoliticalandeconomiccostsofinitiatingdebtrestructurings—prioritizetimelydebtpaymentsoveressentialdevelopmentspend-ing.Thisisnotapathtosustainabledevelopment.Rather,itisaroadblocktodevelopmentand

leadstoincreasinginequalityanddiscontent.

Thelonger-termeconomicconsequencesoftoday’sdebtanddevelopmentcrisesarebecom-

ingclear:Since2015,grosscapitalformationinlow-incomecountrieshasstalledatjust22%of

GDP—wellbelowthe33%averageformiddle-incomecountries.Toemergefromtheirpoverty

andtocatchupevenwithmiddle-incomecountriestheyshouldbeinvestingalarger,notasmaller,percentageofGDP.Externalborrowinginmanyofthesecountrieshasnotbeenaninstrumentforbuildingproductivecapacitiesordomesticvaluechains.Instead,undercurrentconditions,

financialflowsasawholehavediscouragedlong-terminvestmentwhileincreasingvulnerabilitytovolatilityandcapitalflight.

Thecurrentdebtanddevelopmentcrisisindevelopingcountriesisnotanisolatedfiscalmisfor-tune.Thefactthatexcessesofdebthaveafflictedsomanycountries,withdebtanddevelopmentcrisesoccurringsooftensuggeststhataresystemiccausesandconsequences.Accordingly,it

shouldcomeasnosurprisethatsoshortlyafterthepreviousinitiativesfordebtreliefforlow-in-comecountries,theworldisonceagainconfrontingdebtanddevelopmentcrises.

Onedefiningcharacteristicofthisdysfunctionalsystemisthat,fordevelopingcountries,capitalflowsareprocyclical:Duringglobalfinancingbooms,moneyfloodsin;inbusts,itflowsoutevenmorequickly.Successivephasesofpromisingdevelopmentcannotbecountedontocontinue.

Moreoftenthannot,apositivephaseisapreludetoapainfulcontraction,especiallywhenthey

arefinancedbydebt.Foradvancedeconomies,thereverseholdstrue.Intimesofcrisis,capital

flowstowardthem.Inastorm,safefinancial“havens”becomeallthemoreattractive.Thisasym-metryenrichestherich,impoverishesthepoor,andreinforcesitself,astheprocyclicalmovementsweakenthepoorandthecountercyclicalmovementsstrengthentherich,makingthemanever

moreattractivesafehaven.

Anotherdefiningcharacteristicofthisdysfunctionalsystemischronicunderinvestmentininno-vation,humancapital,andinfrastructure.Thepatternsofunderinvestmentindevelopingcoun-triesareexacerbatedbythefinancialconditionsimposedbyvolatileandprocyclicalcapitalflowsandbeenfurtherexacerbatedbythepolicyconstraintsassociatedwithhighdebtburdens.Theepisodiccrisesareregularlyaccompaniedbyepisodicboutsofausterity.

Thereisoftenaviciouscircleatplay.Inmanycases,thesedynamicshaveerodedstatecapacityandweakenedtheabilityofpolicymakerstoevenconceiveofdevelopmentstrategiesthatcouldenablestructuraltransformationandsustainedeconomicself-determination.

Thesestructuralvulnerabilitiesarecompoundedbytheactionsofbothcreditorsandborrowers.Sovereignborrowersmaytakeonexcessivedebtundertermsincompatiblewithdevelopment

financing—sometimesdrivenbyshort-termpoliticalincentivesormisalignedvestedinterests,andoftenwithouttheinstitutionalcapacitytochannelborrowedfundsintoproductivetransformation.Ontheotherside,privatecreditorsfrequentlyengageinexcessiveandexpensivelendingduringboomperiods,motivatedsometimesbyexpectationsofpreferentialtreatmentinrestructuring

vis-à-visofficialcreditors.Sometimestheylendbecause,intheeventofashortageofforeign

exchangerequiredtoservicethedebt,theIFIswillprovidetherequisitefunds,adefactobailout.

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Thisdynamichasoftenresultedinexcessivedebt,metwithlimitedaccountability.

Afterthe2008financialcrisis,the2009worldrecession,andthebailoutofWesternbanking

systems,privatecapitalpouredintolow-andlower-middle-incomecountries,wherereturnswerehighandcapitalaccountregulationswereweakornonexistent.Thiswaveofcapitalinflowsfueledoptimisticnarrativesofdevelopment,epitomizedbythe“billionstotrillions”slogan.Butwhile

theinflowsappearedpromising,theywerefundamentallymisalignedwithlong-termdevelopmentgoals.Governmentsborrowedunderunfavorableterms:shortmaturitiesandnoassurancesof

continuedaccesstofundswhenthedebtneededtoberolledover,andratesthatweresignificantlyabovethoseofloansprovidedbyinternationalfinancialinstitutions.Thesearenottheconditionsunderwhichinvestmentsineducation,infrastructure,andindustrialcapacity—whichtakedecadestomature—canbesustainablyfinanced.

EvenbeforetheCOVID-19pandemicandthewarinUkraine,manycountrieshadalreadyaccu-

mulatedunsustainabledebts.Thepandemicnecessitatedunprecedentedpublicspendingtoprotectlivesandlivelihoods.Thewarthentriggeredspikesinfoodandenergyprices,exacerbatingexter-nalimbalances.Whenadvancedeconomiesrespondedbysharplyraisinginterestrates,financingconditionsforotherstighteneddramatically.In2023alone,thenetfinancialtransferfromlow-

andlower-middleincomecountriestoprivatecreditorsinadvancedeconomiesreached$30billion.

Ironically,itwastheIFIs—whosemandateistosupportdevelopment,reducepoverty,andstabi-lizeeconomies—thatsteppedintofinancetheseoutflows.Ratherthanprovidingcountercycli-caldevelopmentfinance,theyunderwrotecapitalflight.Indoingso,theyshiftedthecostof

private-sectorbailoutsontocitizensinthedevelopingworld—manyofwhomnowfacenotonlyhigherdebtstocks,butalsorisinginterestpaymentsonofficialloans.

Beneaththiscrisisliesadeeperstructuralfailure,whichisthechronicweaknessofpublicfinancesandthepersistentunderinvestmentineconomictransformation.Theabilityofstatestomobilizedomesticresourceshasbeenunderminedbyinternationaltaxavoidance,illicitfinancialflows,

theunder-taxationofcorporateprofits—especiallyinvolvingmultinationalfirms—theunfair

exploitationofextractiveresources,andtheheavyrepatriationofdividends.Yetresponsibility

cannotliesolelywithexternalactors.Inmanycases,domesticpoliticalandeconomiceliteshavealsoplayedarole—byfailingtostrengthenpublicinstitutions,bytoleratingorenablingrent-seek-ingbehavior,andbyavoidingreformsthatcouldhavebuiltgreaterresilienceandaccountability.

In2025,globalmarketsremainfragileamidstgeopoliticalandtradeconflicts.TheIFIsnowproj-ectlowerglobalgrowthforthecomingyears,particularlyfordevelopingcountries.Thisfurtherunderminesdebtsustainability,asacountry’sdebtisobviouslymoresustainablewhenthecountrygrowsmorerapidlyand,specificallyforexternaldebt,whenthereismoreavailabilityofforeignexchange.Refinancingprospectsfordistressedeconomiesareincreasinglyuncertain,whilethe

debtoverhangcontinuestodepressinvestment,growth,andhumanwell-being.

Inthiscontext,solutionsmustgobeyondtemporaryrelieformodestreductionsindebtservice.Whatisneededisaneweconomicmodelcenteredonstrengtheninglong-terminvestment.Publicinvestmentandfinancialstrategiesshouldnotbetreatedjustasshort-termcountercyclicaltoolsbutasinstrumentsforpromotingsustainabledevelopment.Usingcreditsimplytocreatefiscal

spaceisnotenough.Theprioritymustbetousethatspacetofinancecoherent,long-termsustain-abledevelopmentstrategiesthatalignfiscal,financial,andproductivedevelopmentpolicy,undertheguidanceofcapablepublicinstitutions.Thisrequiresanchoringinvestmentplansaround

developmentmissions.Thegoalisnotmerestabilization.Itisstructuraltransformation.

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Muchofthedebtsustainabilityrisksindevelopingcountriesarerelatedtoexternalfactorsoverwhichtheyhavenocontrol.Theserisksarecompoundedbytheweaknessesofthemultilateral

financialsystemtoprovidesufficientflowsatcompetitivetermsthataccuratelyreflectactuarialriskandwhichmovecountercyclicallyandnotprocyclically,andwhichwhenadebtcrisisarises,resolvesitswiftly,fairly,andefficiently.Aglobalfinancialsystemthatenablesvastresourcetrans-fersfromthedevelopingcountriestothecreditors,whiledenyingsustainableinvestmentina

country’sfuture,isnotonlyinefficient,butalsounjustandextractive.

Sharedresponsibility.Ouranalysisoftheoriginsofthisandotherdebtcrisesandwhattodo

aboutthemsuggestsasharedresponsibility.Theinternationalcommunitywritlarge,themultilat-eralinstitutions,andthedevelopingcountrieshavenotdonewhattheyshould.And,unfortunately,itistrueevenofthosewiththebestofintentionswhosoughttoenhancestabilityandpoverty

reduction.Worse,therearethosewhohavenothadthebestofintentionsbutrathersoughtgainwithouttakingintoaccountthecostsimposedonsomeofthepoorestpeopleintheworld.Ourpurposehere,however,isnottoassessblamebuttoproposeaplanofactionthatdetailswhat

canandshouldbedonebymultilateralinstitutions,financialinstitutions,andgovernmentsatthenationallevelandintheparticularjurisdictionswheredebtcontractsarewritten.Wewantto

alleviatethecurrentdebtanddevelopmentcrisisandmakeitlesslikelythattherewillbefurthercrises,sothatcountrieswillfinallybeabletofinancesustainabledevelopment.

AsPopeFrancishasremindedus,“Inequalityistherootofsocialills”(EvangeliiGaudium,§202).Ifwearetomeaningfullyaddressthedevelopmentandenvironmentalcrises,wemustbeginbyconfrontingthisinjustice—understandinghowtheglobalfinancialarchitecturecontributestothesecrises,acknowledgingsharedresponsibility,andadvancingsolutionsthatshiftthesystemtowardgreaterequity,efficiency,andsharedprosperity.

III.TheSystemicFlawsintheGlobalFinancialArchitectureUnderminingDevelopment

Theinternationalfinancialsystemisnotwelldesignedtoservetheneedsofdevelopingcountries.Instead,itreflectsandreinforcesdeepstructuralasymmetriesbetweendevelopingandadvancedeconomiesthatinturnshapetheconditionsunderwhichcountriesborrow,thecoststheyfacewhentheydo,andtheconsequencesofthatborrowing.Theseasymmetriesarenotjusteconomic;theyarehistoricalandpolitical,preservedbyaninternationalordershapedbythemostpowerfulandstructuredinwaysthatfavorthem.

Manydevelopingeconomiesfaceenormousinvestmentneeds,limitedfinancingopportunities,andheightenedvulnerabilitytoexternalshocks.Thispredicamentisgivencontemporaryurgencybyrapiddemographicgrowthinmanyofthepoorestcountries,butitisrootedinhistoricalpatterns.Thecolonialeraleftbehindeconomicstructuresgearedtowardtheextractionandexportof

rawmaterials,withlowlevelsofproductivediversificationandheavydependenceonimportedconsumergoods.Thisdependencyhasprovendifficulttoovercomeformanysocieties.Inmanycases,theglobaltradearchitecturehasbeenoneoftheimpediments.

Globalfinancialmarketspenalizetheseinheritedweaknesses.Countriesthatdependheavilyon

theexportofprimarycommoditiesare,andareperceivedas,riskierborrowers.Asaresult,theyarechargedhigherinterestratesininternationalcreditmarkets,whichaccordingtotheempiricalevidencearehigherthancanbejustifiedbythehigherriskofdefault.Thisfurtherincreasestheirriskofdefaultandconstrainstheircapacitytoinvestintheeconomictransformationtheyneed—reinforcingaself-perpetuatingcycleofunderdevelopmentandinequality.

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Onemighthavethoughtthatrichcountries,beinginabetterpositiontoabsorbrisk,wouldtransferriskawayfromdevelopingcountries.Externalcapitalflowswouldpresumablyhelpde-riskdevelop-mentandserveasabuffer.Thisiswhatstandardeconomictheoriesofefficientmarketswouldhavepredicted.Buttheoppositehasoccurred.Ratherthanbeingasourceofsustainablegrowth,globalcapitalmarketshaveoftenprovenprocyclicalanddestabilizing.Suddenstopsandsurginginterestrateshaverepeatedlyinterruptedinvestmentneededtodiversifyeconomiesandbuildresilience.Ingoodglobaltimes,capitalflowstodevelopingcountries;whenturbulencehits,itfleesbacktoadvancedeconomiesperceivedassafer.Asdiscussedearlier,thisisthekeyasymmetryintheglobalfinancialsystem.CapitalmobilityactsasastabilizerfortheGlobalNorthandadestabilizerformuchoftheGlobalSouthandthedevelopingworld.Wearewitnessingtheseeffectstoday.Globalfinancialandcapitalregulations—orthelackthereof—havecontributedtothisproblem.Thus,eventhosegovernmentsindevelopingcountriesthatborrowtoinvest,butatrelativelyshortmaturities,andgrowsufficientlynottoseetheirdebtratiosrise,arestillunabletorefinancethosedebtswhenglobaluncertaintiesriseandinternationalcapitalmarketstightenforthedevelopingcountries.

Thisdysfunctionalbehaviorreflectsdeeperflawsinthearchitectureofglobalfinance.Misalignedincentives—or“agencyproblems”—affectbothborrowersandlenders.Manydebtorspursueshort-termgains,includingtheimmediatepoliticaladvantagesthataccesstofundsnowmightprovide,evenwhencertaindebtpoliciesimposelargelong-termcosts.Privatecreditors,oftenlargecorpo-rations,borrowwithoutfullyaccountingforthebroadermacroeconomicconsequences.Likewise,individualcreditorsdisregardhowtheirlendingmightaffectexchangeratesorfinancialstability;andthemanagersoffinancialinstitutionsmaygetrewardedmoreonthebasisoftheamountlentthantheaccurateassessmentoftheriskoftheborroweranditscapacitytorepay.

Meanwhile,centralbanksinadvancedeconomies—theprimaryenginesofgloballiquidity—follow-ingtheirmandatesrespondalmostexclusivelytodomesticconcerns,disregardingtheglobalrippleeffectsoftheirpolicies.Inperiodsoflowglobalinterestrates,suchasafterthe2008internationalfinancialcrisis,theresultingsearchforyieldledtoexcessivelendingtodevelopingcountriesandemergingmarkets.

Theexcessesofderegulation—especiallycapitalaccountliberalization—removedkeytoolsthatdevelopingcountriesonceusedtomanagevolatilefinancialflows.Fromthe1980sonward,market-drivenideologyencouragedgovernmentstoopentheireconomiesandborrowabroadinhopesofestablishingcredibility,gainingmarketaccess,andboostinginvestment.Evenshort-termflowswerewelcomed,underthebeliefthatsuchflowswouldleadtohigherrealinvestment.Inreality,thevolatilityofshort-termcapitaloftenprovedcounterproductive.

Asnotedearlier,IFIs—createdafterWorldWarIIbytheinternationalcommunitytostabilizetheglobaleconomyandpromotedevelopment—haveattimesexacerbatedtheproblem.Thoughtheirmissionistopreventcollapseandsupportgrowth,theyhaverepeatedlybailedoutprivatecreditorsandimposedausterityondebtorcountriestoensurerepaymenttocreditorsfromadvancedecon-omies.Inpractice,theyhavetoooftenprioritizedfinancialinterestsoversustainabledevelopment.

Moreover,asignificantportionofmultilaterallendingcarriesprocyclicalfeatures.Loaninterestratesarecloselytiedtopolicyratessetbythecentralbanksofeconomicallyadvancedcountries.Thisexplainswhythecostofborrowingfrommultilateralinstitutionshasrisensharplyoverthepastthreeyears,drivenbymonetarytighteningintheeconomicallyadvancedcountriesinresponsetoinflationfollowingthewarinUkraine.

Certainbankingregulations,includingthoseintendedtoensurethesafetyandsoundnessofbanksbutwhichtreatsovereigndebtfromdevelopingcountriesandemergingmarketsasriskyassets,also

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contributetotheprocyclicalnatureofcapitalflowstodevelopingcountries.

ThereisasecondaspectofIFIs’lendingthatmaybecounterproductive.Wenoteinthisreportthattheyhavesystematicallyprovidedadefactobailoutforprivatecreditorsandaredoingsonow.Suchbailoutsencourageexcessivelendingand/orlendingofthewrongkind,contributingtotheepisodicdebtanddevelopmentcrisesfacingdevelopingcountries.

Insum,theglobalfinancialsystemfailstoofferthekindoflong-term,stable,countercyclicalfinanc-ingthatdevelopingcountriesneed.Nordoesitprovideadequateprotectionfromexternalshocks—whethertriggeredbyglobalinterestratehikes,commoditypricespikes,orclimate-relateddisasters.

WithallthereservationsnotedconcerningtheIFIs,creditfromMultilateralDevelopmentBanks(MDBs)remainsamongthemosthelpfulformsoffinancingfordevelopingcountries,givenitstermsandthatitattemptstolinkfinancewithdevelopment.Moreover,theInternationalMonetaryFund(IMF)providesfinancingwhenprivatecreditorsdonot,whichprovidesthemainrationaleforitspreferredcreditorstatus.

Somearguethattoolittlemoneyflowstodevelopingcountriesthroughdebtchannels,giventheirvastinvestmentneeds.Butamoreaccurateassessmentisthatthereistoomuchofthewrongkindofdebt,andtoolittleofthekindthatsupportssustainabledevelopment—toomuchfocusonshort-termcapital,andtoolittleonlong-terminvestment.Moreove