Less than three years after the governor of Puerto Rico called repayment of its debt a “moral obligation,” the U.S. territory is headed for the fourth-largest government default on record.

Though markets have met the event with a shrug, that shouldn’t diminish the significance of the moment. It underlines how much the stigma about government default has faded. Investors would be wise to build this risk into their calculations when lending to governments from now on, especially since arithmetic suggests more defaults are on the way. With less moralizing and more planning, both creditors and debtors will be better off.

Even Germany is starting accept this. It has yet to explicitly acknowledge that Greece won’t repay what it owes Europe, but a deal with the International Monetary Fund on Wednesday makes that almost inevitable.

The idea that repayment of debt is a moral obligation irrespective of cost has deep cultural resonance. Yet it has never been a good guide to reality. Even without access to formal bankruptcy, every heavily indebted country weighs the cost of repaying debt against the loss of confidence and creditworthiness that default entails. Promises, even those embedded in laws and constitutions, are always subject to economic facts on the ground.

Founding father Alexander Hamilton advocated repayment of U.S. Revolutionary War debts less out of moral obligation than naked self-interest. The infant republic needed solid credit to build an economy and fight wars. Even so, according to one study, Hamilton gave creditors less than their loans were worth.

Today, seven years after the global financial crisis, debt dynamics remain grim. Debts remain high and economic growth is sluggish almost everywhere. Moody’s Investors Service has downgraded sovereign nations more than it has upgraded them every year since 2008. In 2007, 57% of advanced countries were rated triple-A by Moody’s, the highest level. Now just 39% are.

Standard & Poor’s has downgraded four U.S. states this year and warns 10 more are at risk. In a recent report it says that state and local laws that protect bondholders are often bent: Creditworthiness depends mostly on economic fundamentals, “not legal protections.”

ENLARGE

As a U.S.-controlled territory, Puerto Rico has less economic and fiscal autonomy than a true sovereign but more than a state. As its economy steadily shrank, the government kept borrowing until total debt and unfunded pensions reached $118 billion, or 172% of gross national income.

In 2013, Gov. Alejandro García Padilla promised nonetheless that Puerto Rico would repay its debt. “It is not only a constitutional but also a moral obligation,” he said. In 2014, the cash-strapped territory issued $3.5 billion in general-obligation bonds, which enjoy the strongest legal protection of the territory’s many classes of debt.

Default is now coming. A bill just negotiated between the Republican-controlled House and the Obama administration would create an oversight board with the power to restructure that debt. Creditors have fought back; some have run ads throwing Mr. García Padilla’s “moral obligation” pledge back in his face.

It’s hard to know what is less sincere: the original pledge or creditors’ claims to have trusted it. The prospectus accompanying the 2014 issue listed 14 pages of risk factors, including this one: “New legislation could…entitle the Commonwealth to seek the protection of a statute providing for the restructuring, moratorium and similar laws affecting creditors’ rights.” The buyers, mainly hedge funds, knew they were getting an 8.7% yield, 5.5 percentage points more than top-rated Maryland offered, by assuming a high risk of default.

The oversight board is a sensible compromise. It can order a debt restructuring while requiring that it be in “the best interest of the creditors” and that the relative seniority between creditors is respected, while forcing the territory to repair its finances.

The rest of the world is moving in the same direction. Governments have for years issued bonds with collective-action clauses that prevent a minority of creditors from blocking a restructuring. Those clauses are now being beefed up so that would-be holdouts would have to amass a sizable chunk of a country’s entire debt, not just one class.

When Greece’s crisis erupted in 2009, the international community, fearing contagion, pretended the country’s debts were repayable when they plainly were not. As a result, both Greece’s economy and the value of Greek government bonds spiraled down until formal default in 2012.

A remorseful IMF is now much more insistent that unpayable debt be recognized as such. Last year, the IMF required Ukraine’s private creditors to take haircuts as a condition of a bailout.

In December, the fund dropped a long-standing policy that a bailout recipient first resolve any existing loans from other governments (such as Russia, owed $3 billion by Ukraine). This will prevent creditor governments from holding up a restructuring.

In the latest negotiations over Greece, the IMF wanted European governments to effectively write down what they were owed. Germany, which adheres to a highly moralistic view of debt, had refused. On Wednesday, it gave ground, agreeing to consider restructuring in 2018 (after German elections).

This represents progress, and not a moment too soon. Venezuela may soon join the list of sovereign deadbeats: It is struggling to service $120 billion in debt amid a collapsing economy and depressed oil price. Any restructuring will have to grapple with China, the country’s biggest creditor.

Venezuela’s president, Nicolás Maduro has reassured investors that his country “has ethics, morals and commitments.” Fine sentiments, but investors should ignore them and study the economic numbers instead.