Pope's direct experience of financial crisis informs views on economy, expert says

Pope’s direct experience of financial crisis informs views on economy, expert says

Pope’s direct experience of financial crisis informs views on economy, expert says

Pope Francis flanked by Queen Silvia of Sweden delivers his speech during the conference "Narcotics, Problems and Solutions of This Global Issue" organized by the Pontifical Academy of Social Sciences at the Casina Pio IV, at the Vatican, Thursday, Nov. 24, 2016. (Credit: AP Photo/Andrew Medichini.)

Eric LeCompte, executive director of Jubilee USA Network, says when Pope Francis goes against “vulture funds,” and calls for a new economic model, it’s because he has first-hand experience of the financial crisis these institutions caused in his home country, Argentina.

ROME – When Pope John Paul II decided to tackle communism and help bring down the Berlin Wall, he did so not only because he saw it as a global problem, but because he had first-hand experience of the impact of the communist system due to his Polish upbringing.

Similarly, according to American layman Eric LeCompte, executive director of Jubilee USA Network, when Pope Francis goes against “vulture funds,” and calls for a new economic model, it’s because he has first-hand experience of the financial crisis these institutions caused in his home country, Argentina.

Hence, it’s both extraordinary but not surprising, LeCompte says, that a Feb. 5 summit in the Vatican will bring together some of the world’s most important players when it comes to finances, including the head of the International Monetary Fund, Kristalina Georgieva and several Nobel laureates. Argentina’s finance minister, Martin Guzman, will also be present.

Guzman, appointed by newly inaugurated Peronist President Alberto Fernandez, needs to restructure $100 billion in sovereign debt with its creditors, $44 billion of it with the IMF, amid a steep recession and more than 50 percent inflation.

Guzman and Georgieva are due to have a meeting about the debt on the sidelines of the Vatican conference, titled “New forms of solidarity: Towards fraternal inclusion, integration and innovation,” organized by the Pontifical Academy of Social Sciences, headed by Argentine Archbishop Marcelo Sanchez Sorondo.

Crux spoke with LeCompte in Rome, ahead of the meeting, about the impact it can have not only on Argentina’s economy but global finances.

“Pope Francis also comes from a very special perspective,” he said. “He is the first pope that we know of in modern history who came from a country that was dealing with a deep financial crisis, austerity. It’s a big part of the reason why ‘vulture funds’ has become part of the vocabulary of the Catholic Church.”

The idea of this small, high-level seminar, LeCompte said, is to bring together thinkers and world leaders and build a more inclusive financial system: “One that can have new mechanisms to deal with the debt problems that Argentina has suffered, but also Puerto Rico, El Salvador, Zambia are all struggling with, as well as to look at issues such as taxation: The developing world loses a trillion dollars a year because of tax evasion and corruption.”

Jubilee, the network he works for, was founded after a call from Pope John Paul II and other major religious leaders in the mid-1990s, in an effort to create a more inclusive economy. Jubilee USA, LeCompte said, is interfaith, working with Jewish, Muslim and Christian groups.

What follows are excerpts of LeCompte’s conversation with Crux Feb. 4.

Crux: Pope Francis has a book-length interview that has as its headline, “this economy kills.” Do you agree?

LeCompte: I think the strong words of the Holy Father are accurate. There is a reality that we have a global economy that lifts some but leaves many behind. And I think that’s why we’ve seen the Holy Father have such an emphasis on inclusion in the economy.

Pope Francis also comes from a very special perspective. He is the first pope that we know of in modern history who came from a country that was dealing with a deep financial crisis, austerity. It’s a big part of the reason why “vulture funds” has become part of the vocabulary of the Catholic Church.

The Argentine media covering the Vatican has been focusing a lot of attention on the fact that Argentina’s Minister for the Economy and the head of the International Monetary Fund will be in Rome for this meeting that you’re attending. And I know you have focused on Argentina since 2010. What can you tell us about this specific element of the meeting?

My organization became the primary organization to focus on the struggle between Argentina and a group of predatory hedge funds, also known as vulture funds. But Argentina had a deep debt crisis and had been able to restructure 90 percent of that debt, exchange it for new, cheaper debt. And then, about 7 percent of the debt, the bond owners and creditors were holding out, employing aggressive tactics. There’s a small group of this seven percent that became publicly known as “vulture funds” because whether it be the Dominican Republic or other countries, these predatory hedge funds buy debts for pennies on the dollar, and then use aggressive tactics for collection.

This kind of predatory finance has been a concern of the Catholic Church for over 20 years. And essentially, every world leader, the G20, the G7, have all called for the ending of the hedge funds.

That said, Argentina had dealt with a deep crisis, it couldn’t get new borrowing and financing, and was dealing with deep austerity problems because of its problems with the vulture funds. This has been a very big issue and has been at the forefront of the previous Argentine financial crisis. When Argentina got out of that crisis, it settled fully with the vulture funds, made a big payout, and it’s also part of the reason why Argentina is again in crisis. It paid out the funds instead of restructuring the crisis, and again Argentina is not having access to enough resources.

The International Monetary Fund negotiated a new plan for Argentina, and unfortunately, it was terrible, and IMF recognizes that at this point. We are meeting here in Rome, and it’s pretty amazing that you have the leaders from Argentina, an Argentine pope, and the head of the IMF all spending a day together here in Rome.

The idea of this small, high level seminar is to bring together thinkers and world leaders and build a more inclusive financial system. One that can have new mechanisms to deal with the debt problems that Argentina has suffered, but also Puerto Rico, El Salvador, Zambia are all struggling with, as well as to look at issues such as taxation: The developing world loses a trillion dollars a year because of tax evasion and corruption.

But this meeting is also taking place at a key moment when Argentina is negotiating its financial crisis and attempting to restructure its debt again and facing a deadline this week.

You mentioned that Argentina is, once again, in crisis, once again in this situation. And even though the IMF acknowledges that their plan was bad, one has to wonder, is it worth it for Pope Francis, even as an Argentinian himself, to spend some of his political capital seeking to bail out a country that is cyclically in a crisis, when many say it shouldn’t, since Argentina is not a poor country?

That’s when you get to the reality that this event is about much more than Argentina. We have, going back to the mid-1990s strong Catholic teaching on the need of negotiating to solve debt issues, transparency issues and corruption issues. At this point, it’s a core part of the teaching of the Catholic Church. I think that, when we are talking about Argentina and its recurring and cyclical financial crisis, we are actually talking about much of the world. Right now, 40 percent of the developing world, according to the IMF, is either in debt crisis or facing severe financial crisis.

It’s wealthy countries, middle income countries and developing countries that are struggling with these recurring issues. The financial crisis which affected all of us in 2008, there were strong warnings by the IMF and the UN that we are approaching another financial crisis, even making comparisons to the Great Depression.

And when you look at inclusive economics and the mechanisms needed to solve financial crisis, whether it’s a global crisis, Argentina or Zambia, it’s the same mechanisms that are needed for the financial system. And this is what leads us to this meeting. To our knowledge, this is the first time that the Holy See is convening at this level, on these issues.

Argentina is important, yes, but it’s not an aberration of the problem, but a clear illustration of the global problem. That’s why the meeting has leaders from all over the world coming, including the finance ministries of a dozen major countries, to talk not only about what we agree are the solutions, but to start to put in place mechanisms that could move the solutions forward.

Do you think there’s actual good will at this meeting?

I think there is. I think a lot of that is because of Pope Francis and the leadership that he has shown on economic issues. This goes back to his personal situation when he was living in a country that was on the other side of the gun barrel of these vulture funds. He has a great sense of the challenges that face the financial system. It’s why we’ve seen in Laudato Si’ and other documents a higher level of debate and discussion and actual financial mechanism. We’ve always seen in the Church strong words regarding debt issues, taxes and corruption. But in this pontificate, we see a higher level of specificity on these issues, and this is in part because he lived them.

On your point regarding good will, I think that it’s remarkable that the head of the IMF and the World Bank are coming to Rome for this high level seminar, because, again, where we have broad agreement on what are the causes of financial crisis, what are the causes of debt crisis and challenges within the financial system, we haven’t moved to the corrective measures yet, which is, to be able to work out of that crisis, to be able to correct risky and predatory financial behavior, when those are seen as the causes.

This gathering is important because it’s bringing together the actual people who could move mechanisms to change our financial systems, mechanisms that the Holy See has been advocating for 20 years.

But the vulture funds will be missing…

Yes, but they are missing from all the global tables. I just want to be clear, yes, they are a concern, but it would be a mistake to think that this event is about vulture funds. It’s about creating an inclusive economy. About challenging inequality and ending extreme poverty. It’s about tackling the fact that – according to UNICEF – 22,200 kids under the age of five die every single day due to extreme poverty. That’s about these particular policies, and that’s what this event is about.

The IMF is coming, the World Bank is coming, and they promote some issues Pope Francis has often accused them of tying to financial aid, the “price tag” or ideological colonization that he often speaks about. Do you think that it’s good that he’s sitting at the table with them?

I think that what Pope Francis is doing is continuing the high level of diplomacy that the Catholic Church has been recognized for and it’s something that Pope Francis himself is really good at. His words have been some of the most striking, challenging and powerful on how the international financial system operates. And some of his major documents, even though he doesn’t mention the IMF by name, he is critiquing its policies. With one hand he’s critiquing and with the other, he’s trying to open the can to have a conversation.

I think that with the new leadership of the IMF there’s a possibility to look in a new way at these issues. It’s also important to know that, in some ways, we’ve been here before. We might not have experienced the Argentine financial crisis or we might not have experienced the global financial crisis of 2008 if a process known as the sovereign debt resolution mechanism had been implemented by the IMF in the early 2000s. It was very close, but it failed, largely because of the private sector and some other concerned. But because it failed, it allowed for the conditions for the 2008 financial crisis.

So, even if the IMF had these kinds of ideas, mechanisms on the table before, that’s why it’s so important that the IMF, the World Bank and Nobel laureates are coming together in a neutral place, where the pope has been affected by these policies first hand. He spoke critically about them, but has also extended an open arm to help us get to the next level.

And even though there’s a lot of things on which the Church and these players disagree – population control, abortion – there are others in which there’s a common ground, like in the protection of the environment…

Right. I think that’s also something we’re going to see emphasized during this gathering. The impact of climate as we talk about poverty and inequality. Climate can no longer be removed from the equation of financial crisis, debt crisis or countries not being able to raise the revenue they need to be able to take care of their own people and fight the consequences of climate change.

Why should Catholics care about this?

For Catholics, this is foundational teaching. If we really want to understand this event, it’s important to start from the point of view that we should love our neighbors as ourselves. As Catholics, we know we are called to be in solidarity with one another, to be able to work for the common good as a part of Catholic teaching, and be able to participate in making the world better. This is foundational Catholic teaching.

This is not Pope Francis being a Communist?

No… If we didn’t have Pope Francis, the teaching would still be the same. I don’t know if we’d be having the meeting without him, but the reality is that this teaching pre-dates Pope Francis by decades.

As an economic expert, what’s, in your opinion, Pope Francis’s most important speech?

When we talk about the views of Pope Francis on the economy, I like to refer to what I believe is the most important speech Pope Francis ever gave but that many of us never understood. And that’s his remarks to the United Nations in New York. Yes, he talked about climate, he talked about human rights issues, but he didn’t talk about any of those issues without first talking about the economy, like he does in Laudato Si’, it’s this idea that we have to frame all the other issues and understanding an economy that creates immense wealth for a small group of people leaving everyone else behind.

In his speech to the United Nations, Pope Francis talked about the need for international institutions to create exits from debt. We see some very high institutions in this Feb. 5 meeting working on creating mechanisms that move us towards bankruptcy and that can fight tax avoidance and corruption.

Follow Inés San Martín on Twitter: @inesanma


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