1 00:00:10,720 --> 00:00:14,520 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:14,600 --> 00:00:17,919 Speaker 1: I'm Tracy Alloway and I'm Joe. Joe. It's been a 3 00:00:17,920 --> 00:00:21,599 Speaker 1: while since we talked emerging markets. It really has been, 4 00:00:21,800 --> 00:00:25,120 Speaker 1: and probably to our detriment, because there is a lot 5 00:00:25,200 --> 00:00:30,440 Speaker 1: going on with the commodities boom, the US dollar boom, 6 00:00:30,640 --> 00:00:35,519 Speaker 1: the tightening cycle, inflation, there's the distress in Sri Lanka 7 00:00:35,600 --> 00:00:38,120 Speaker 1: among others, So there's a lot together. There's a lot 8 00:00:38,200 --> 00:00:40,400 Speaker 1: that's been going on, right, And every time you see 9 00:00:40,400 --> 00:00:44,120 Speaker 1: the US raise interest rates, you generally see some pain 10 00:00:44,560 --> 00:00:48,000 Speaker 1: in emerging markets because the dollar goes up and the 11 00:00:48,120 --> 00:00:51,680 Speaker 1: foreign currency payments that governments who have borrowed in the 12 00:00:51,720 --> 00:00:54,400 Speaker 1: dollar have to pay those go up. And it just 13 00:00:54,480 --> 00:00:56,960 Speaker 1: feels like at the moment, with everything that's going on. 14 00:00:57,480 --> 00:01:00,080 Speaker 1: And you mentioned the commodities boom, Normally a commodity the 15 00:01:00,160 --> 00:01:02,960 Speaker 1: spoon would be great for emerging markets, but this time 16 00:01:03,080 --> 00:01:06,200 Speaker 1: it seems to come with a lot of imported inflation. Yes, 17 00:01:06,680 --> 00:01:09,120 Speaker 1: so this time it seems like a really toxic mix 18 00:01:09,160 --> 00:01:12,840 Speaker 1: for m and like acute shortages. So you could have 19 00:01:12,920 --> 00:01:15,080 Speaker 1: a commodities boom and it's like, Okay, there are a 20 00:01:15,080 --> 00:01:18,959 Speaker 1: bunch of commodity producing countries seeing big, you know, cash 21 00:01:19,080 --> 00:01:23,240 Speaker 1: increase in their imports or their their cash flows right now. 22 00:01:23,440 --> 00:01:25,840 Speaker 1: But you know, if you're a country that doesn't have 23 00:01:25,920 --> 00:01:29,040 Speaker 1: much domestic food, or country that doesn't have much domestic 24 00:01:29,040 --> 00:01:33,560 Speaker 1: wheat specifically, and there's a grain shortage, then you're it's 25 00:01:33,600 --> 00:01:38,080 Speaker 1: is a very distressing time. Yeah, very toxic mix politically 26 00:01:38,120 --> 00:01:40,360 Speaker 1: as well. And of course the other big thing that's 27 00:01:40,400 --> 00:01:43,960 Speaker 1: going on is Russia, and we've had lots of people 28 00:01:44,240 --> 00:01:48,560 Speaker 1: expecting Russia to default on its bonds. That seems almost 29 00:01:48,560 --> 00:01:51,240 Speaker 1: certain to happen now given that the U. S. Treasury 30 00:01:51,520 --> 00:01:55,520 Speaker 1: has imposed even more restrictions on trading in the secondary 31 00:01:55,560 --> 00:01:58,720 Speaker 1: market of the debt. They've also stopped investors from accepting 32 00:01:59,120 --> 00:02:02,680 Speaker 1: bond payments from Russia. So it seems like a default 33 00:02:02,720 --> 00:02:05,200 Speaker 1: is definitely going to happen, which means, of course that 34 00:02:05,240 --> 00:02:08,520 Speaker 1: we need to talk about all of this means all right, 35 00:02:09,000 --> 00:02:11,280 Speaker 1: without further ado, I am very pleased to say we 36 00:02:11,320 --> 00:02:13,960 Speaker 1: really have the perfect guest to discuss. We are going 37 00:02:14,000 --> 00:02:17,000 Speaker 1: to be speaking with Jane Newman. He is a former 38 00:02:17,160 --> 00:02:23,000 Speaker 1: portfolio manager at Elliott, very instrumental in Elliott's pursuit of Argentina. 39 00:02:23,040 --> 00:02:25,760 Speaker 1: And all the drama that happened there. He's a sovereign 40 00:02:25,800 --> 00:02:29,880 Speaker 1: debt specialist in general now turned novelist and his book 41 00:02:30,080 --> 00:02:33,600 Speaker 1: is called Under Money. That's out now. Jay, welcome so 42 00:02:33,680 --> 00:02:36,480 Speaker 1: much to the show. Tracy, thank you, and thank you, Joe, 43 00:02:36,520 --> 00:02:40,560 Speaker 1: thanks for coming up. So maybe, given your decades of 44 00:02:40,600 --> 00:02:43,040 Speaker 1: experience and EM, maybe just to begin with, we could 45 00:02:43,080 --> 00:02:46,080 Speaker 1: ask the big question, how bad is it right now 46 00:02:46,120 --> 00:02:52,079 Speaker 1: for EM and what is the most striking historical analogy 47 00:02:52,160 --> 00:02:54,359 Speaker 1: or parallel that you would compare it to. I think 48 00:02:54,360 --> 00:02:58,640 Speaker 1: it's almost the perfect storm for EM. And the only 49 00:02:58,680 --> 00:03:02,400 Speaker 1: real comparison I can draw is from the very beginning 50 00:03:02,520 --> 00:03:06,959 Speaker 1: of Third World debt crises, which is the eighties. Um 51 00:03:07,000 --> 00:03:10,480 Speaker 1: the Foreign Sovereign Immunities Act was passed in nineteen seventy six, 52 00:03:10,560 --> 00:03:14,200 Speaker 1: the Stateiumunities Act in England nineteen seventy seven, and then 53 00:03:14,240 --> 00:03:17,560 Speaker 1: we saw a huge, huge volume of lending. It's the 54 00:03:18,040 --> 00:03:22,400 Speaker 1: time when Walter Riston famously said to excuse lending to 55 00:03:22,480 --> 00:03:26,360 Speaker 1: development countries, he said, countries don't go bankrupt, which is 56 00:03:26,639 --> 00:03:30,240 Speaker 1: completely accurate and totally useless if you're a creditor. But 57 00:03:30,320 --> 00:03:33,080 Speaker 1: what we saw there was a period in which something 58 00:03:33,120 --> 00:03:37,400 Speaker 1: like twenty five countries defaulted. UH. And what years this 59 00:03:37,520 --> 00:03:40,160 Speaker 1: was in The faults started in the late seventies, but 60 00:03:40,240 --> 00:03:43,480 Speaker 1: they extended into the eighties. UH. And they weren't resolved 61 00:03:43,560 --> 00:03:47,040 Speaker 1: really into the nineties. UH. Of course the case of Argentina, 62 00:03:47,080 --> 00:03:50,720 Speaker 1: which went on even longer. UM. But we're talking about 63 00:03:50,720 --> 00:03:55,160 Speaker 1: a period that could be very, very stressful and distressing 64 00:03:55,280 --> 00:03:59,800 Speaker 1: for developing country borrowers. Just going back, actually before we 65 00:04:00,120 --> 00:04:02,920 Speaker 1: get too much on the present. Why did countries default? 66 00:04:03,680 --> 00:04:06,800 Speaker 1: They default because markets closed to them, And that's what 67 00:04:06,920 --> 00:04:11,120 Speaker 1: typically happens. The initial defaults in Poland and in Mexico 68 00:04:11,680 --> 00:04:15,320 Speaker 1: made lenders very nervous, and when it came time to 69 00:04:15,400 --> 00:04:18,520 Speaker 1: roll over the debt, there was there were no takers. 70 00:04:18,560 --> 00:04:22,120 Speaker 1: That's what's happening today. I mean, it's it's uh, it's 71 00:04:22,160 --> 00:04:25,640 Speaker 1: almost an inedible process when when things are good and 72 00:04:25,680 --> 00:04:29,760 Speaker 1: money is easy, people pile in and the underwriters find, 73 00:04:29,839 --> 00:04:32,120 Speaker 1: you know, plenty of buyers, but all of a sudden, 74 00:04:32,520 --> 00:04:36,800 Speaker 1: when one country defaults. Let's take Lebanon, Let's take Sri Lanka, 75 00:04:36,800 --> 00:04:40,800 Speaker 1: which you mentioned, Everyone says, WHOA, what about country X 76 00:04:40,839 --> 00:04:44,320 Speaker 1: and country wine, country Z, And then they become nervous 77 00:04:44,360 --> 00:04:48,040 Speaker 1: and then the debt can't get rolled, is it inevitable 78 00:04:48,120 --> 00:04:51,320 Speaker 1: in the current situation. The investors start pushing back, and 79 00:04:51,400 --> 00:04:53,240 Speaker 1: I mean the reason I ask is because how many 80 00:04:53,279 --> 00:04:56,080 Speaker 1: times has Argentina default it? Now? And someone out there 81 00:04:56,160 --> 00:04:59,159 Speaker 1: is always buying the new bonds that it issues. It 82 00:04:59,240 --> 00:05:03,400 Speaker 1: feels like people investors learn their lesson for you know, 83 00:05:03,520 --> 00:05:06,640 Speaker 1: maybe a month, and then the next year they forget 84 00:05:06,680 --> 00:05:10,280 Speaker 1: it again and people are buying em indiscriminately. It's it's 85 00:05:12,480 --> 00:05:16,760 Speaker 1: um It is a complicated ecosystem, and it's it's rotation 86 00:05:16,880 --> 00:05:19,440 Speaker 1: because what happens in the first instances that the buyers 87 00:05:20,120 --> 00:05:24,280 Speaker 1: tend be real money buyers, retail investors through mutual funds 88 00:05:24,320 --> 00:05:28,480 Speaker 1: that are responding to advertisements. You've you've seen those ads 89 00:05:28,520 --> 00:05:31,359 Speaker 1: in the in the paper which show past performance and 90 00:05:31,400 --> 00:05:34,599 Speaker 1: they and they always show the best performing funds, and 91 00:05:34,760 --> 00:05:38,160 Speaker 1: periodically those are emerging market funds, and that's when sales 92 00:05:38,200 --> 00:05:42,680 Speaker 1: pick up and the the the mutual fund investor and 93 00:05:42,760 --> 00:05:47,479 Speaker 1: buyer is driven by indices. So there's always a buyer. 94 00:05:47,560 --> 00:05:50,440 Speaker 1: If the country's in the index, whether it's Argentina or Russia, 95 00:05:50,920 --> 00:05:54,040 Speaker 1: those bonds have to get included and there that's why 96 00:05:54,080 --> 00:05:57,839 Speaker 1: they're bought. Then what happens is after default, they get 97 00:05:57,880 --> 00:06:02,560 Speaker 1: puked and the more opportunistic investors like hedge funds come 98 00:06:02,600 --> 00:06:06,839 Speaker 1: in and the cycle starts over again. You mentioned that 99 00:06:07,000 --> 00:06:11,040 Speaker 1: quote in the beginning that countries don't go bankrupt, and 100 00:06:11,120 --> 00:06:14,440 Speaker 1: as you say, it's maybe true, but completely irrelevant to 101 00:06:14,520 --> 00:06:17,200 Speaker 1: an actual creditor of the country, whether they're gonna get 102 00:06:17,200 --> 00:06:20,919 Speaker 1: paid back or not. Why do countries choose to default? 103 00:06:21,000 --> 00:06:24,280 Speaker 1: I mean, in theory, you know country, a government has 104 00:06:24,320 --> 00:06:27,279 Speaker 1: certain choices it can make. It can cut back on 105 00:06:27,960 --> 00:06:32,480 Speaker 1: domestic spending to prioritize lending. What are the conditions that 106 00:06:32,560 --> 00:06:35,440 Speaker 1: tend to proceed a government making the choice, like, you 107 00:06:35,480 --> 00:06:38,680 Speaker 1: know what, we're not going to We're what? Why does 108 00:06:38,720 --> 00:06:41,479 Speaker 1: the why did they do that? It's uh so, so many, 109 00:06:41,520 --> 00:06:45,680 Speaker 1: so many questions nestled and nested in what you just asked, Joe. 110 00:06:46,200 --> 00:06:51,240 Speaker 1: It's always political. Countries don't typically borrow with the intention 111 00:06:51,320 --> 00:06:54,520 Speaker 1: of default, but on some level it's always in the 112 00:06:54,560 --> 00:06:58,120 Speaker 1: back of the mind of a politician because they borrow 113 00:06:58,400 --> 00:07:01,640 Speaker 1: to get money they can use for their own purposes, 114 00:07:01,680 --> 00:07:05,960 Speaker 1: whatever those are, whether there for legitimate infrastructure and and 115 00:07:06,200 --> 00:07:09,800 Speaker 1: building or corrupt purposes, which in many cases they are. 116 00:07:09,279 --> 00:07:13,000 Speaker 1: They they are, but it's a political decision. And when 117 00:07:13,080 --> 00:07:15,880 Speaker 1: the it's only when the the money is cut off 118 00:07:16,000 --> 00:07:18,800 Speaker 1: or threatened to be cut off, that political figures in 119 00:07:19,200 --> 00:07:22,640 Speaker 1: borrowing countries decide that, well, maybe it's not worth the 120 00:07:22,680 --> 00:07:27,440 Speaker 1: trouble is it is part of it, the idea that 121 00:07:27,720 --> 00:07:32,560 Speaker 1: politicians are satisfying a domestic constituency, and so foreign investors 122 00:07:32,640 --> 00:07:36,320 Speaker 1: kind of are a very easy demographic to just you know, 123 00:07:36,480 --> 00:07:38,520 Speaker 1: leave out and say, well, we're going to screw over 124 00:07:38,520 --> 00:07:43,200 Speaker 1: the foreign investors in order to satisfy our population easier 125 00:07:43,240 --> 00:07:45,680 Speaker 1: and easier for a variety of reasons. One you've mentioned, 126 00:07:45,680 --> 00:07:50,600 Speaker 1: which is that markets have short memories, and that's certainly true. 127 00:07:51,320 --> 00:07:54,000 Speaker 1: But the other pieces that when a country runs into trouble, 128 00:07:54,640 --> 00:07:59,280 Speaker 1: the multilateral organizations all rally around it, and the actually 129 00:07:59,280 --> 00:08:02,200 Speaker 1: other governments rally around it. So if in the case 130 00:08:02,240 --> 00:08:04,920 Speaker 1: of Sri Lanka is just a case in point, we're 131 00:08:04,920 --> 00:08:07,560 Speaker 1: going to see we will see uh, the I m 132 00:08:07,640 --> 00:08:10,360 Speaker 1: F and the World Bank and the Asian Development Bank 133 00:08:10,520 --> 00:08:14,760 Speaker 1: and the G seven and the G twenty all saying, oh, 134 00:08:14,760 --> 00:08:19,440 Speaker 1: poor Sri Lanka, not blaming Sri Lanka for for their problems, 135 00:08:20,080 --> 00:08:24,040 Speaker 1: but looking for an opportunity to fleece foreign foreign lenders 136 00:08:24,320 --> 00:08:29,080 Speaker 1: and that that's that is a consistent pattern. What's different today, UH, 137 00:08:29,080 --> 00:08:31,320 Speaker 1: And I know we'll get to talk about this is 138 00:08:31,360 --> 00:08:36,000 Speaker 1: the role of China, because China is increasingly has the 139 00:08:36,000 --> 00:08:40,800 Speaker 1: whip hand in essentially in developing country lending. So explain 140 00:08:40,880 --> 00:08:44,360 Speaker 1: that further. What exactly is the role of China and 141 00:08:44,440 --> 00:08:47,200 Speaker 1: emerging markets and how much does the outlook for e 142 00:08:47,360 --> 00:08:50,920 Speaker 1: M defaults depend on what China chooses to do or 143 00:08:50,960 --> 00:08:54,960 Speaker 1: not do. I think China is the critical element in 144 00:08:55,080 --> 00:08:59,840 Speaker 1: emerging market lending. The One Belt, One Road initiative has 145 00:09:00,000 --> 00:09:04,440 Speaker 1: meant that China has UH provided money either loans or 146 00:09:04,559 --> 00:09:09,120 Speaker 1: investments in dozens of countries around the world. For ports, 147 00:09:09,120 --> 00:09:14,080 Speaker 1: for rails, for UH, communications, infrastructure, you name it. The 148 00:09:14,200 --> 00:09:17,520 Speaker 1: Chinese are promoting it and UH and lending money to 149 00:09:17,559 --> 00:09:20,760 Speaker 1: developing countries. So China has become and this this is 150 00:09:20,800 --> 00:09:24,360 Speaker 1: the critical element. China has become a huge lender and 151 00:09:24,520 --> 00:09:28,040 Speaker 1: investor in developing countries. But no one knows how big 152 00:09:28,080 --> 00:09:31,000 Speaker 1: they are. No one knows, I mean the Chinese know, 153 00:09:31,200 --> 00:09:34,000 Speaker 1: but no one else because the contracts under which they 154 00:09:34,040 --> 00:09:37,680 Speaker 1: invest our secret. I've I've asked on many occasions to 155 00:09:37,720 --> 00:09:40,880 Speaker 1: see a copy of these loan agreements, and it's always 156 00:09:42,640 --> 00:09:45,320 Speaker 1: we can't talk about that. It's it's part of our agreement. 157 00:09:45,840 --> 00:09:47,760 Speaker 1: And I don't think the even the I M F 158 00:09:48,400 --> 00:09:51,800 Speaker 1: has a clue what the scale of those investments are, 159 00:09:51,840 --> 00:09:55,000 Speaker 1: which means that when you face a restructuring, you've got 160 00:09:55,000 --> 00:09:59,600 Speaker 1: a creditor, a very aggressive and important creditor, China, which 161 00:09:59,679 --> 00:10:02,760 Speaker 1: does want to take a discount at all. So you 162 00:10:02,800 --> 00:10:05,960 Speaker 1: have a super senior element there that we've never seen 163 00:10:06,000 --> 00:10:07,960 Speaker 1: before in the history of E M lending. I was 164 00:10:08,000 --> 00:10:11,400 Speaker 1: about to ask what kind of creditor is China. I know, 165 00:10:11,480 --> 00:10:13,880 Speaker 1: it's hard to tell because we haven't really seen them 166 00:10:14,040 --> 00:10:17,760 Speaker 1: enter a massive default cycle since they wrapped up their lending. 167 00:10:17,840 --> 00:10:20,040 Speaker 1: And you're completely right that it's hard to tell the 168 00:10:20,080 --> 00:10:22,600 Speaker 1: scale of that lending, and Bloomberg has made attempts at 169 00:10:22,640 --> 00:10:24,600 Speaker 1: various points in time to put a number on it. 170 00:10:24,600 --> 00:10:28,120 Speaker 1: It's a very very non transparent. But what sort of 171 00:10:28,120 --> 00:10:31,200 Speaker 1: indication do we have of how they might behave in 172 00:10:31,200 --> 00:10:35,160 Speaker 1: a distress situation, Well, how they behave in pretty much 173 00:10:35,240 --> 00:10:40,240 Speaker 1: every commercial situation. Uh, they're right and you're wrong, and 174 00:10:40,320 --> 00:10:44,760 Speaker 1: they're implacable foes on many levels, but particularly when it 175 00:10:44,800 --> 00:10:46,880 Speaker 1: comes to the debt. It's it's just I'd like to 176 00:10:46,920 --> 00:10:49,640 Speaker 1: just go back to this very little geeky but I 177 00:10:49,640 --> 00:10:53,560 Speaker 1: think important point, which is, can you imagine a sitting 178 00:10:53,600 --> 00:10:57,240 Speaker 1: down at a negotiating table with a group of creditors. 179 00:10:57,320 --> 00:10:59,640 Speaker 1: You've got the I m F, the World Bank, other 180 00:10:59,800 --> 00:11:04,440 Speaker 1: multi lateral institutions, and you've got different creditor groups, banks, 181 00:11:04,640 --> 00:11:09,560 Speaker 1: industrial lenders, investors, UH and bond holders. Everyone's at the table, 182 00:11:10,320 --> 00:11:15,679 Speaker 1: everyone's documents are on the table except for China. So 183 00:11:15,760 --> 00:11:19,160 Speaker 1: you have this huge force, you know, in the room 184 00:11:19,200 --> 00:11:21,960 Speaker 1: and outside the room that won't tell you how much 185 00:11:22,160 --> 00:11:25,320 Speaker 1: they owe and isn't willing to take a discount to 186 00:11:25,760 --> 00:11:29,280 Speaker 1: make things make things fit together. So it's almost in 187 00:11:29,320 --> 00:11:32,680 Speaker 1: that climate, it's actually it actually becomes, in my view, 188 00:11:33,080 --> 00:11:38,760 Speaker 1: impossible to have restructurings that really get countries out of 189 00:11:38,760 --> 00:11:41,320 Speaker 1: the woods and put them on a strong financial path, 190 00:11:41,720 --> 00:11:43,880 Speaker 1: because you've got one. Used to be that we would 191 00:11:43,880 --> 00:11:46,920 Speaker 1: complain about the I m F being insisting on being 192 00:11:46,920 --> 00:11:50,640 Speaker 1: super senior. Now you've got a creditor that is put 193 00:11:50,640 --> 00:11:53,520 Speaker 1: in placing itself super senior to the I m F. 194 00:12:08,559 --> 00:12:11,640 Speaker 1: Something UH that we talk about on the show from 195 00:12:11,640 --> 00:12:14,640 Speaker 1: time to time is this sort of difference between you know, 196 00:12:14,720 --> 00:12:18,600 Speaker 1: the financial cycle and the economic cycle. And you know, 197 00:12:18,640 --> 00:12:20,760 Speaker 1: what we've been talking about so far, it's seems like 198 00:12:20,840 --> 00:12:23,680 Speaker 1: very much the financial cycle. And you mentioned, you know, 199 00:12:23,720 --> 00:12:26,520 Speaker 1: you have this situation where one country or two countries 200 00:12:26,559 --> 00:12:29,400 Speaker 1: default suddenly all the money pulls back or on the flip. 201 00:12:30,160 --> 00:12:33,480 Speaker 1: A bunch of retail investors see that, you know, looking 202 00:12:33,600 --> 00:12:35,800 Speaker 1: open their copy of Barons and see that I'm the 203 00:12:35,840 --> 00:12:38,800 Speaker 1: best best last five years. That's some e M funded Like, yeah, 204 00:12:38,840 --> 00:12:41,160 Speaker 1: I'll put my money in there. What is the So 205 00:12:41,559 --> 00:12:46,280 Speaker 1: there's this global clearly downturn in the sort of liquidity cycle. 206 00:12:46,559 --> 00:12:51,200 Speaker 1: The financial cycle is clearly in retreat. What's the macro cycle, 207 00:12:51,240 --> 00:12:53,720 Speaker 1: like the sort of like actual like underlying ECNT cycle. 208 00:12:53,720 --> 00:12:56,440 Speaker 1: And how much stress is that putting countries under? I 209 00:12:56,480 --> 00:12:59,720 Speaker 1: think the what's what's happening even in the last three months, 210 00:13:00,400 --> 00:13:05,240 Speaker 1: prices of energy and foodstocks is something we haven't seen 211 00:13:05,280 --> 00:13:07,720 Speaker 1: in a long long time, and it puts a lot 212 00:13:07,760 --> 00:13:10,240 Speaker 1: of pressure on every country because the first, the first 213 00:13:10,240 --> 00:13:13,600 Speaker 1: obligation of a government is to is to keep its 214 00:13:13,640 --> 00:13:16,640 Speaker 1: people warm and fit. And I think the extent that 215 00:13:16,640 --> 00:13:18,640 Speaker 1: that's put at risk, and it is at risk now 216 00:13:18,679 --> 00:13:22,079 Speaker 1: in in dozens of countries. Countries really have no choice 217 00:13:22,120 --> 00:13:26,800 Speaker 1: but to prioritize those needs over payment of foreign debt. 218 00:13:26,960 --> 00:13:30,240 Speaker 1: It doesn't mean that they don't respect foreign debt or 219 00:13:30,360 --> 00:13:33,000 Speaker 1: intend to restructure it or repay it at some point 220 00:13:33,040 --> 00:13:35,720 Speaker 1: in time. But I think in the near term they'll 221 00:13:35,760 --> 00:13:40,640 Speaker 1: make a correct political decision for themselves to delay, defer, 222 00:13:40,920 --> 00:13:44,480 Speaker 1: or deny those payments. So Joe asked a question that 223 00:13:44,520 --> 00:13:47,480 Speaker 1: I thought was interesting, which is why do countries default? 224 00:13:47,600 --> 00:13:51,040 Speaker 1: And I want to ask a similar question about incentives 225 00:13:51,080 --> 00:13:54,120 Speaker 1: and decision making. But you are at Elliott for a 226 00:13:54,240 --> 00:13:59,280 Speaker 1: very long time. How did you decide what distressed investments 227 00:13:59,640 --> 00:14:04,200 Speaker 1: to because you targeted, you know, some very specific not 228 00:14:04,320 --> 00:14:07,920 Speaker 1: just countries, but very specific bonds issued by those countries. 229 00:14:09,280 --> 00:14:12,600 Speaker 1: There are there are a few, um a few really 230 00:14:12,640 --> 00:14:17,200 Speaker 1: important elements to any investing, and particularly sovereign debt investing. 231 00:14:17,720 --> 00:14:20,760 Speaker 1: One is that the end. One is that the contract 232 00:14:20,960 --> 00:14:25,680 Speaker 1: has to be strong, and sovereign bond contracts have gotten 233 00:14:26,040 --> 00:14:29,360 Speaker 1: much much weaker over the last twenty years. Really a 234 00:14:29,400 --> 00:14:32,680 Speaker 1: concerted effort on the part of the official sector. UH 235 00:14:32,720 --> 00:14:35,200 Speaker 1: and the G seven Europeans have been at the at 236 00:14:35,240 --> 00:14:38,120 Speaker 1: the forefront of this diluting covenants and making it more 237 00:14:38,160 --> 00:14:41,480 Speaker 1: difficult to enforce in the event of a defall. But 238 00:14:41,600 --> 00:14:47,200 Speaker 1: the most critical element is your basic financial analysis of 239 00:14:47,240 --> 00:14:50,880 Speaker 1: the country. And uh and Tracy, you're absolutely right. You know, 240 00:14:50,960 --> 00:14:53,880 Speaker 1: at Elliott we were extremely selective in the death that 241 00:14:53,920 --> 00:14:57,320 Speaker 1: we bought because you really had to believe. You always 242 00:14:57,400 --> 00:14:59,880 Speaker 1: have to believe when you're when you're buying sovereign debt 243 00:15:00,360 --> 00:15:04,800 Speaker 1: that the debtor is capable of honoring its contracts. And 244 00:15:04,880 --> 00:15:07,080 Speaker 1: so those are the two critical elements. Is the debt 245 00:15:07,080 --> 00:15:11,040 Speaker 1: are able to pay? And contractually is there a way 246 00:15:11,080 --> 00:15:15,200 Speaker 1: to keep them at the table. So I have to 247 00:15:15,240 --> 00:15:19,160 Speaker 1: ask would you have bought Russian bonds with that in mind? 248 00:15:19,880 --> 00:15:22,200 Speaker 1: I have never bought a Russian bond. I never would 249 00:15:22,240 --> 00:15:25,840 Speaker 1: buy a Russian bond, Russian Russian um and in fact 250 00:15:25,880 --> 00:15:28,720 Speaker 1: I hadn't I hadn't looked until recent days. I hadn't 251 00:15:28,760 --> 00:15:31,200 Speaker 1: looked at the Russian bond contract for a very long time, 252 00:15:31,280 --> 00:15:36,160 Speaker 1: and I had forgotten this that Russian debt Russia does 253 00:15:36,160 --> 00:15:42,640 Speaker 1: not wave sovereign immunity. So the critical element of contemporary 254 00:15:42,680 --> 00:15:45,640 Speaker 1: bond contracts is a waiver of sovereign immunity, which means 255 00:15:45,680 --> 00:15:48,960 Speaker 1: that you can sue by agreement, you can actually go 256 00:15:49,000 --> 00:15:51,840 Speaker 1: to court. You can go to discuss the issue exactly. 257 00:15:51,880 --> 00:15:54,560 Speaker 1: You can go to court typically in either the US 258 00:15:54,680 --> 00:15:58,560 Speaker 1: or the UK or both, and that is an essential element. 259 00:15:58,600 --> 00:16:01,560 Speaker 1: The other one of the other critical pieces is not 260 00:16:01,640 --> 00:16:04,320 Speaker 1: just waving immunity, but agreeing where you can be sued. 261 00:16:05,040 --> 00:16:08,280 Speaker 1: So if Russia says I don't wave immunity, we're back 262 00:16:08,320 --> 00:16:11,160 Speaker 1: to a world that we haven't seen in sovereign debt 263 00:16:11,520 --> 00:16:15,560 Speaker 1: since the fifties, well before the Foreign Sovereign Munities Act 264 00:16:15,560 --> 00:16:18,240 Speaker 1: and the State Immunities Act, where the sovereign is a 265 00:16:18,320 --> 00:16:22,760 Speaker 1: beneficiary of absolute immunity. It's what sovereigns are. They do 266 00:16:22,800 --> 00:16:25,120 Speaker 1: what they want when they want, they pay what they 267 00:16:25,120 --> 00:16:27,280 Speaker 1: want when they want to pay it. And that's the 268 00:16:27,320 --> 00:16:30,840 Speaker 1: position that Russia has staked out for itself. Why was 269 00:16:30,880 --> 00:16:33,400 Speaker 1: there I mean, we had we talked about Russian debt, 270 00:16:33,440 --> 00:16:37,680 Speaker 1: I think back March share early on after the invasion, 271 00:16:37,800 --> 00:16:39,520 Speaker 1: But you know, we talked about the end of the 272 00:16:39,520 --> 00:16:42,480 Speaker 1: fact that there weren't many covenants, that there were all 273 00:16:42,560 --> 00:16:45,000 Speaker 1: kinds of things buried in the language that seemed to 274 00:16:45,000 --> 00:16:47,720 Speaker 1: be sort of favorable for Russia all those years, even 275 00:16:47,760 --> 00:16:52,240 Speaker 1: after the invasion of Crimea I think, which was in fourteen. 276 00:16:53,360 --> 00:16:56,800 Speaker 1: Why was there still so much willingness between that period 277 00:16:56,840 --> 00:16:59,680 Speaker 1: when it was clear that the country would be willing 278 00:16:59,680 --> 00:17:03,240 Speaker 1: to be a military aggressor and engaging activities that people 279 00:17:03,280 --> 00:17:06,600 Speaker 1: would associate with a prize state. Why up and for 280 00:17:06,640 --> 00:17:09,680 Speaker 1: basically another eight years after that did there and then 281 00:17:09,680 --> 00:17:13,440 Speaker 1: the conditions that you just mentioned about not waving sovereign immunity. 282 00:17:13,480 --> 00:17:16,800 Speaker 1: Why was there so much willingness for all those years 283 00:17:16,880 --> 00:17:19,240 Speaker 1: on the part of buyers to continue buying Russian bonds? 284 00:17:19,240 --> 00:17:22,439 Speaker 1: In your view, because Russia was a great payer. They 285 00:17:22,600 --> 00:17:26,600 Speaker 1: kept paying throughout even after the sanctions imposed, you know, 286 00:17:26,680 --> 00:17:31,440 Speaker 1: post Crimea in and they showed no indication of not 287 00:17:31,560 --> 00:17:35,720 Speaker 1: intending to honor their obligations. So Russia looked like a 288 00:17:35,960 --> 00:17:38,720 Speaker 1: like like a strong credit. And in fact, Russia even 289 00:17:38,720 --> 00:17:43,480 Speaker 1: at the beginning of this of this crisis, post January February, 290 00:17:43,680 --> 00:17:48,280 Speaker 1: Russia insisted and did make payments. So Russia really in 291 00:17:48,560 --> 00:17:51,760 Speaker 1: it appears to all intents to intend to be a 292 00:17:51,800 --> 00:17:57,200 Speaker 1: responsible debtor. Right now, it's it's um because of sanctions, 293 00:17:57,240 --> 00:17:59,840 Speaker 1: it's foreclosed from doing that. I want to go back 294 00:17:59,880 --> 00:18:02,560 Speaker 1: to something you said about Sri Lanka and you're like, Okay, 295 00:18:02,560 --> 00:18:05,040 Speaker 1: there's a default, but the world comes together and all 296 00:18:05,040 --> 00:18:08,439 Speaker 1: these international institutions that I'm at, the G seven, the 297 00:18:08,480 --> 00:18:12,760 Speaker 1: Asian Development Bank, etcetera. And they try to help Sri 298 00:18:12,800 --> 00:18:15,040 Speaker 1: Lanka out. It's not Sri Lanka's fault that they're in 299 00:18:15,080 --> 00:18:17,680 Speaker 1: the stress. And when you said that, I clearly got 300 00:18:17,720 --> 00:18:20,600 Speaker 1: the impression that you think that this is a bad system, 301 00:18:20,800 --> 00:18:24,320 Speaker 1: or that this sort of generosity towards Sri Lanka in 302 00:18:24,359 --> 00:18:27,760 Speaker 1: the wake of a default is not productive or misplaced. 303 00:18:27,920 --> 00:18:30,040 Speaker 1: Can you talk about your view a little bit more 304 00:18:30,040 --> 00:18:32,200 Speaker 1: on that. I mean, it's been a pretty tough two years. 305 00:18:32,240 --> 00:18:36,520 Speaker 1: There was a pandemic, then there's been surging inflation. Why 306 00:18:36,600 --> 00:18:40,920 Speaker 1: shouldn't all these public or official institutions take the view 307 00:18:40,960 --> 00:18:43,440 Speaker 1: that Sri Lanka got into a bad place and they 308 00:18:43,440 --> 00:18:47,159 Speaker 1: need help. If we go back to basics. And I 309 00:18:47,200 --> 00:18:50,160 Speaker 1: wrote a little piece about this that I called Unsafe 310 00:18:50,160 --> 00:18:57,639 Speaker 1: at any Price, comparing sovereign debt to the corvet sovereign debt. 311 00:18:57,720 --> 00:19:00,600 Speaker 1: The idea of a sovereign borrowing and a current see 312 00:19:00,680 --> 00:19:05,680 Speaker 1: that isn't its own, is fundamentally flawed. It's a really 313 00:19:06,200 --> 00:19:09,880 Speaker 1: bad idea. But the entire structure of the sovereign dett 314 00:19:09,920 --> 00:19:14,040 Speaker 1: industry is you know, it supports the idea that it's 315 00:19:14,520 --> 00:19:17,080 Speaker 1: that it's not a bad idea. But if you take 316 00:19:17,080 --> 00:19:19,280 Speaker 1: the case of Sri Lanka, and Sri Lanka had borrowed 317 00:19:19,320 --> 00:19:22,960 Speaker 1: in its own currency rather than in the dollar or 318 00:19:23,000 --> 00:19:26,280 Speaker 1: in the euro, it wouldn't have a problem because it 319 00:19:26,320 --> 00:19:29,720 Speaker 1: could just print its own currency. Now, the response to that, 320 00:19:30,160 --> 00:19:32,400 Speaker 1: and we get this all the time, people saying, well, 321 00:19:32,400 --> 00:19:35,520 Speaker 1: but they couldn't borrow if they couldn't borrow that much 322 00:19:35,520 --> 00:19:39,199 Speaker 1: money unless they agree to borrow dollars, And isn't that 323 00:19:39,280 --> 00:19:42,960 Speaker 1: just the point? So would you argue therefore, I mean, 324 00:19:43,359 --> 00:19:45,679 Speaker 1: you know, again, I'm really struck by this idea that 325 00:19:45,840 --> 00:19:49,520 Speaker 1: flows often start because retail investors see the adds in 326 00:19:49,520 --> 00:19:52,800 Speaker 1: the newspapers that really this whole system of a sort 327 00:19:52,840 --> 00:19:58,760 Speaker 1: of like public financialized sovereign debt market particular for MS, 328 00:19:58,760 --> 00:20:02,919 Speaker 1: sort of flawed the core, completely completely flawed, completely rotten. 329 00:20:03,320 --> 00:20:05,399 Speaker 1: If it were if 're up to me and I 330 00:20:05,440 --> 00:20:09,920 Speaker 1: had my magic wand I would repeal the Sovereign Immunities Act, 331 00:20:10,040 --> 00:20:13,240 Speaker 1: and I'd repeal the State Immunities Act, and I would 332 00:20:13,359 --> 00:20:16,120 Speaker 1: I would go back to the principle of absolute immunity, 333 00:20:16,240 --> 00:20:19,480 Speaker 1: because if you're if you're looking at absolute immunity, and 334 00:20:19,520 --> 00:20:21,840 Speaker 1: maybe the Russians have the right idea and perhaps not 335 00:20:21,960 --> 00:20:25,800 Speaker 1: borrowing in occurrency not their own, but the right idea, 336 00:20:25,880 --> 00:20:28,080 Speaker 1: and saying you're looking at if you look at me 337 00:20:28,200 --> 00:20:31,440 Speaker 1: as a sovereign, I'll pay you what I want when 338 00:20:31,480 --> 00:20:34,840 Speaker 1: I want, and you have to trust me. And that 339 00:20:34,920 --> 00:20:38,520 Speaker 1: would put investors on a very different footing. It wouldn't 340 00:20:38,520 --> 00:20:41,760 Speaker 1: make the underwinding community at all happy about it because 341 00:20:41,800 --> 00:20:43,840 Speaker 1: it would mean that they couldn't sell as many bonds. 342 00:20:44,400 --> 00:20:47,760 Speaker 1: But wouldn't that be sagatary. It definitely sounds like you'd 343 00:20:47,760 --> 00:20:51,159 Speaker 1: probably get less boom bust. It would be harder to 344 00:20:51,200 --> 00:20:53,960 Speaker 1: sell debt probably during the boom, I guess, but you 345 00:20:54,000 --> 00:20:56,760 Speaker 1: don't get these huge swings and flows. I think that's 346 00:20:56,800 --> 00:21:00,119 Speaker 1: exactly right. Could you talk a little bit about E 347 00:21:00,400 --> 00:21:04,480 Speaker 1: s G and how that relates to sovereign debt, because 348 00:21:04,520 --> 00:21:06,720 Speaker 1: you know, we're talking about the Russian bonds and one 349 00:21:06,720 --> 00:21:08,800 Speaker 1: of the things that stands out is that if you 350 00:21:08,840 --> 00:21:13,320 Speaker 1: read the risk factors, it's just a litany of bad 351 00:21:13,400 --> 00:21:16,040 Speaker 1: stuff that Putin has done. Basically saying that he's done 352 00:21:16,080 --> 00:21:18,520 Speaker 1: a bunch of bad stuff, there might be sanctions, he 353 00:21:18,520 --> 00:21:21,160 Speaker 1: could do more bad stuff, And yet you had big 354 00:21:21,200 --> 00:21:25,960 Speaker 1: investors who ostensibly care about E s G and social 355 00:21:26,040 --> 00:21:28,840 Speaker 1: values who bought a lot of the debt. And at 356 00:21:28,880 --> 00:21:30,920 Speaker 1: the same time, now you're seeing a lot of people 357 00:21:30,920 --> 00:21:35,200 Speaker 1: talk about E s G as a sort of political consideration. 358 00:21:35,280 --> 00:21:38,200 Speaker 1: So do you want to lend to Russia if it's 359 00:21:38,200 --> 00:21:41,640 Speaker 1: considered an enemy of the United States and things like that. 360 00:21:42,680 --> 00:21:45,679 Speaker 1: I think the short answer to that is no. I 361 00:21:45,680 --> 00:21:48,159 Speaker 1: think a lot of people are not going to a 362 00:21:48,160 --> 00:21:51,160 Speaker 1: lot of people will be taking E s G into account, 363 00:21:51,200 --> 00:21:54,840 Speaker 1: and there will be less of a market for certain debtors. 364 00:21:54,840 --> 00:21:59,040 Speaker 1: But it's um if if you're gonna cast the E 365 00:21:59,240 --> 00:22:02,600 Speaker 1: s G net over developing countries, generally you're gonna run 366 00:22:02,600 --> 00:22:05,359 Speaker 1: into trouble because we're talking about countries that you know 367 00:22:05,520 --> 00:22:09,200 Speaker 1: that on average, and it's unfair to to malign people 368 00:22:09,320 --> 00:22:13,480 Speaker 1: as an average, governance is poor and in many cases 369 00:22:13,840 --> 00:22:17,840 Speaker 1: uh corruption is rampant. And at the same time, countries 370 00:22:17,880 --> 00:22:21,800 Speaker 1: are producer of natural resources that are desperately needed by 371 00:22:21,880 --> 00:22:24,800 Speaker 1: Western industrial countries. So people who will need to turn 372 00:22:24,800 --> 00:22:27,639 Speaker 1: a blind eye to all those factors because of the 373 00:22:28,240 --> 00:22:32,920 Speaker 1: geopolitics and the geo economics. So do you think we 374 00:22:32,960 --> 00:22:35,879 Speaker 1: will see I mean, okay, so so far in this cycle, 375 00:22:35,880 --> 00:22:39,119 Speaker 1: what have we seening? We've seen Sri Lanka, it has defaulted, 376 00:22:39,640 --> 00:22:43,879 Speaker 1: anyone else? Uh, Lebanon? Do you expect to see several 377 00:22:43,880 --> 00:22:45,720 Speaker 1: more coming? I mean, if you say this is you know, 378 00:22:45,760 --> 00:22:47,880 Speaker 1: I think in your first entry he said a perfect storm, 379 00:22:48,000 --> 00:22:49,920 Speaker 1: which is a phrase and Tracy and I know in 380 00:22:49,960 --> 00:22:55,320 Speaker 1: every day so every episode these days, whatever it is, 381 00:22:55,440 --> 00:22:58,399 Speaker 1: it's in a perfect storm. The dollars in a perfect 382 00:22:58,440 --> 00:23:01,960 Speaker 1: storm text docs is a perfect it's the most But 383 00:23:02,080 --> 00:23:05,160 Speaker 1: what there are a lot of perfect storms happening right now. 384 00:23:05,240 --> 00:23:08,600 Speaker 1: I mean, would you expect to see this just the 385 00:23:08,640 --> 00:23:11,760 Speaker 1: absolute number of defaults pick up significantly? I would expect 386 00:23:11,800 --> 00:23:14,639 Speaker 1: it to And I think I think it's actually what 387 00:23:14,680 --> 00:23:18,160 Speaker 1: you're describing is actually one big perfect storm because all 388 00:23:18,160 --> 00:23:22,040 Speaker 1: these things are related, and it's because we haven't seen 389 00:23:22,440 --> 00:23:25,560 Speaker 1: this kind of a boom and a bust in financial 390 00:23:25,600 --> 00:23:29,600 Speaker 1: markets where this kind of a bust in what about 391 00:23:29,640 --> 00:23:32,960 Speaker 1: fifteen years, uh, and maybe on the tech side over 392 00:23:33,000 --> 00:23:36,720 Speaker 1: twenty years. So it's there are so many elements that 393 00:23:36,800 --> 00:23:41,040 Speaker 1: conspire against sovereign debtors continuing to be able to pay 394 00:23:41,520 --> 00:23:44,480 Speaker 1: what they are. So you touched on this a number 395 00:23:44,480 --> 00:23:47,560 Speaker 1: of times. What would you expect a bust of a 396 00:23:47,680 --> 00:23:51,800 Speaker 1: significant scale to lead to some sort of significant change 397 00:23:51,920 --> 00:23:56,320 Speaker 1: in the way emerging market debt markets actually work? I mean, 398 00:23:56,720 --> 00:23:59,440 Speaker 1: would you see the balance of power shift more to 399 00:23:59,560 --> 00:24:02,359 Speaker 1: the credit DERs away from the issuers. Would you expect 400 00:24:02,480 --> 00:24:05,119 Speaker 1: less foreign currency debt to be issued in general and 401 00:24:05,200 --> 00:24:07,400 Speaker 1: things like that, or do we just have a default 402 00:24:07,400 --> 00:24:09,240 Speaker 1: cycle and then we just go back to the way 403 00:24:09,280 --> 00:24:11,040 Speaker 1: it always has been or the way it's been for 404 00:24:11,160 --> 00:24:13,880 Speaker 1: the past couple of decades. Um. I don't expect there 405 00:24:13,920 --> 00:24:16,440 Speaker 1: to be a lot of fundamental change. I think we'll 406 00:24:16,480 --> 00:24:19,359 Speaker 1: get through this period. And the the other important pieces 407 00:24:19,440 --> 00:24:23,400 Speaker 1: that the absolute amount of developing country debt is rather 408 00:24:23,440 --> 00:24:28,560 Speaker 1: small in international financial terms. It's not big enough two 409 00:24:28,680 --> 00:24:31,399 Speaker 1: in and of itself cause a problem except for the 410 00:24:31,400 --> 00:24:34,680 Speaker 1: debtors themselves, who get trapped in a cycle that takes 411 00:24:34,680 --> 00:24:38,600 Speaker 1: many years to to work through. But what is somewhat 412 00:24:38,600 --> 00:24:41,800 Speaker 1: different in this cycle, and we saw it two years 413 00:24:41,800 --> 00:24:45,000 Speaker 1: ago in the case of Argentina in their most recent restructuring, 414 00:24:45,720 --> 00:24:49,400 Speaker 1: is that the bond contracts are so weak so creditors 415 00:24:49,560 --> 00:24:52,720 Speaker 1: realize that they don't have a lot of leverage, and 416 00:24:52,800 --> 00:24:55,320 Speaker 1: because they don't have a lot of leverage, they agree 417 00:24:55,320 --> 00:24:59,000 Speaker 1: to deals that are that are you know, much much 418 00:24:59,040 --> 00:25:01,919 Speaker 1: better for the debtor and much worse for creditors. And 419 00:25:01,960 --> 00:25:04,600 Speaker 1: I don't see that changing. I think if, if, if 420 00:25:04,720 --> 00:25:09,880 Speaker 1: investors study the details, they'll realize that these are not 421 00:25:10,640 --> 00:25:14,359 Speaker 1: The bond contract isn't a safe place to place your bet. 422 00:25:14,800 --> 00:25:17,320 Speaker 1: History being what it is and markets being what they are, 423 00:25:17,800 --> 00:25:19,520 Speaker 1: I don't think we're going to really see much change. 424 00:25:19,640 --> 00:25:23,720 Speaker 1: So you mentioned Argentina, and you know that was an 425 00:25:23,840 --> 00:25:28,639 Speaker 1: enormously profitable trade for Elliott famously, and you just spoke 426 00:25:28,680 --> 00:25:31,840 Speaker 1: about the importance of actually looking at contracts, looking at 427 00:25:31,840 --> 00:25:35,400 Speaker 1: the bond documentation and sifting through it. What was the 428 00:25:35,480 --> 00:25:39,360 Speaker 1: smartest move that you pulled at Elliott when it came 429 00:25:39,400 --> 00:25:42,679 Speaker 1: to Argentina. What were you most proud of? And please 430 00:25:42,720 --> 00:25:45,400 Speaker 1: be as technical as you want, because I have some 431 00:25:45,440 --> 00:25:47,840 Speaker 1: specific things in mind, but i'd love to hear what 432 00:25:47,920 --> 00:25:51,199 Speaker 1: you're thinking. I think that it's it's easy to to 433 00:25:51,480 --> 00:25:54,440 Speaker 1: be grandiose and take credit for the Argentine re structuring, 434 00:25:54,440 --> 00:25:58,040 Speaker 1: but in fact, many creditors work together in that and 435 00:25:58,720 --> 00:26:01,440 Speaker 1: I think that one of the things that I'm most 436 00:26:01,440 --> 00:26:04,720 Speaker 1: pleased with is the the ability of the creditor group 437 00:26:05,160 --> 00:26:08,720 Speaker 1: to really stick together and be thoughtful about what was 438 00:26:08,760 --> 00:26:13,520 Speaker 1: possible in terms of Argentine restructuring, and that collegiality persisted 439 00:26:13,600 --> 00:26:17,000 Speaker 1: to the very end through the through the restructuring and 440 00:26:17,080 --> 00:26:21,920 Speaker 1: ultimately resulting and restructuring that was extremely good for Argentina 441 00:26:22,040 --> 00:26:25,240 Speaker 1: and extremely good for for the creditors that remain standing. 442 00:26:25,560 --> 00:26:27,479 Speaker 1: But a lot of creditors, of course, we're peeled off 443 00:26:27,520 --> 00:26:32,240 Speaker 1: along the way by the Kirshner's aggressive tactics and populism. 444 00:26:32,280 --> 00:26:35,919 Speaker 1: But I think that the idea of collective action is 445 00:26:35,920 --> 00:26:37,760 Speaker 1: something that I think about a lot in terms of 446 00:26:37,800 --> 00:26:41,919 Speaker 1: restructuring is generally and emerging mark restructurings, uh, you know, 447 00:26:42,040 --> 00:26:46,159 Speaker 1: in particular, and you see you see that ability to 448 00:26:46,200 --> 00:26:51,840 Speaker 1: act collectively fading the diversity of creditors in Argentina, I 449 00:26:51,840 --> 00:26:55,800 Speaker 1: think produced a in most recent restructuring produced a very 450 00:26:55,840 --> 00:26:59,760 Speaker 1: bad result with you know, massive debt forgiveness that was 451 00:26:59,800 --> 00:27:05,639 Speaker 1: completely uncalled for because creditors really couldn't agree amongst themselves. 452 00:27:06,359 --> 00:27:08,720 Speaker 1: And this is this is what I call the just 453 00:27:08,840 --> 00:27:13,320 Speaker 1: say no moment that when you're faced with a situation 454 00:27:13,840 --> 00:27:17,960 Speaker 1: in which it's you have no leverage and the debtor 455 00:27:18,119 --> 00:27:23,120 Speaker 1: is being aggressive and obstructive and obstreperous, which is defines Argentina. 456 00:27:23,359 --> 00:27:25,399 Speaker 1: Sometimes you just have to back away from the table. 457 00:27:26,200 --> 00:27:30,280 Speaker 1: But that is the most difficult thing to do, because 458 00:27:30,320 --> 00:27:33,639 Speaker 1: there is a propensity on the part of participants in 459 00:27:33,680 --> 00:27:36,960 Speaker 1: any situation to want to stick with it and remain 460 00:27:37,000 --> 00:27:41,359 Speaker 1: at the table, and sometimes you just can't. But that's 461 00:27:41,440 --> 00:27:44,080 Speaker 1: the that's the one element that if creditors could really 462 00:27:44,160 --> 00:27:48,480 Speaker 1: understand that, embrace it and resort to it, it would 463 00:27:48,480 --> 00:27:52,040 Speaker 1: be much better. Sorry, I have a really basic question, 464 00:27:52,280 --> 00:27:55,040 Speaker 1: but you know, if a country defaults in the market, 465 00:27:55,480 --> 00:27:58,760 Speaker 1: they're supposed to be penalized in some way for that. 466 00:27:59,160 --> 00:28:01,600 Speaker 1: In theory, people are supposed to say, well, they're not 467 00:28:01,640 --> 00:28:04,160 Speaker 1: a reliable borrower and so we're not going to lend 468 00:28:04,160 --> 00:28:08,600 Speaker 1: to them again. If you're an investor or a creditor 469 00:28:08,960 --> 00:28:12,320 Speaker 1: and you back away from a negotiation or you don't 470 00:28:12,359 --> 00:28:15,359 Speaker 1: do something that the sovereign issuer would have liked you 471 00:28:15,400 --> 00:28:18,600 Speaker 1: to do, do you get shunned in the future from 472 00:28:18,840 --> 00:28:21,440 Speaker 1: debt sales or do you get penalized in any way? 473 00:28:22,119 --> 00:28:24,440 Speaker 1: I think you do. You do get shunned. I think 474 00:28:24,600 --> 00:28:29,760 Speaker 1: Argentina is currently being shunned, will be shunned. But I 475 00:28:29,800 --> 00:28:32,280 Speaker 1: think it takes a long time for markets to develop 476 00:28:32,359 --> 00:28:35,840 Speaker 1: that kind of muscle memory. Uh And in the case 477 00:28:35,880 --> 00:28:40,200 Speaker 1: of Argentina, it's taken decades and decades for people to 478 00:28:40,240 --> 00:28:45,320 Speaker 1: realize that fundamentally, Argentina is not a reliable counterparty. I 479 00:28:45,360 --> 00:28:48,520 Speaker 1: think for most other countries that don't have that kind 480 00:28:48,560 --> 00:28:53,160 Speaker 1: of history of aggressive defaults and repeated defaults, investors are 481 00:28:53,160 --> 00:28:56,120 Speaker 1: willing to give new governments a chance. I think the 482 00:28:56,200 --> 00:28:58,600 Speaker 1: question is going to be whether, in the case of Argentina, 483 00:28:59,040 --> 00:29:02,320 Speaker 1: when and if there is a change of regime, markets 484 00:29:02,320 --> 00:29:05,560 Speaker 1: will give that new regime a chance. The the Mocker 485 00:29:05,600 --> 00:29:10,680 Speaker 1: administration is perhaps one reason that investors shouldn't jump in 486 00:29:10,720 --> 00:29:13,520 Speaker 1: too quickly, because Mackrie was there for a very short 487 00:29:13,560 --> 00:29:16,400 Speaker 1: period of time. He did restructure the debt, he did 488 00:29:16,400 --> 00:29:19,680 Speaker 1: bring Argentina back to capital markets, but as soon as 489 00:29:19,720 --> 00:29:22,480 Speaker 1: he was gone, Argentina was back in the tank. But 490 00:29:22,560 --> 00:29:25,080 Speaker 1: what about investors. Do they get penalized as well if 491 00:29:25,120 --> 00:29:27,920 Speaker 1: you don't, you know, do what a government wants, or 492 00:29:27,920 --> 00:29:31,000 Speaker 1: if you walk away from the negotiating table. We haven't 493 00:29:31,040 --> 00:29:34,120 Speaker 1: seen that happen. How do you know in that moment 494 00:29:34,200 --> 00:29:36,040 Speaker 1: is there that it's time to walk away? I mean, 495 00:29:36,080 --> 00:29:39,560 Speaker 1: I assume this is what separates the elites from the right, 496 00:29:39,640 --> 00:29:41,400 Speaker 1: But what is it. How do you know in that 497 00:29:41,440 --> 00:29:44,360 Speaker 1: moment is there to think you just say that in 498 00:29:44,400 --> 00:29:47,760 Speaker 1: the case of Argentina, asked, The discussion went on. It 499 00:29:47,960 --> 00:29:52,760 Speaker 1: moved to Argentina saying we're gonna pay what we're gonna pay, 500 00:29:52,880 --> 00:29:56,160 Speaker 1: and creditors then, at the behest of some of us 501 00:29:56,280 --> 00:30:00,520 Speaker 1: who were encouraging a restructuring of the bond contract, some 502 00:30:00,560 --> 00:30:05,800 Speaker 1: creditors said, well, if you're gonna give us a fifty haircut, uh, 503 00:30:06,160 --> 00:30:08,680 Speaker 1: even though you may not need it, and even though 504 00:30:08,720 --> 00:30:12,160 Speaker 1: you haven't put forth a fiscal plan that describes your 505 00:30:12,200 --> 00:30:14,800 Speaker 1: capacity to pay, if you're going to do all those things, 506 00:30:15,480 --> 00:30:19,840 Speaker 1: at least give us new bond terms that are going 507 00:30:19,880 --> 00:30:22,600 Speaker 1: to be create what I call a super bond, a 508 00:30:22,640 --> 00:30:25,880 Speaker 1: bond that is actually enforceable and would be senior to 509 00:30:25,920 --> 00:30:29,600 Speaker 1: any other kinds of debt. And what Argentina said flat 510 00:30:29,600 --> 00:30:34,040 Speaker 1: out was absolutely not, We're gonna be the same garbage 511 00:30:34,160 --> 00:30:37,520 Speaker 1: covenants in the same garbage paper that we're currently sitting 512 00:30:37,520 --> 00:30:40,360 Speaker 1: at this table talking about that would have been a 513 00:30:40,360 --> 00:30:43,360 Speaker 1: moment to say, we can't we can't live this way. 514 00:30:43,400 --> 00:30:47,520 Speaker 1: We can't live with a default, a massive haircut, and 515 00:30:48,480 --> 00:30:51,640 Speaker 1: a bond contract that makes it completely optional whether you 516 00:30:51,680 --> 00:31:08,800 Speaker 1: ever pay us another dime again, can you explain what 517 00:31:08,840 --> 00:31:12,360 Speaker 1: you mean by their structuring was great for Argentina too? Well? 518 00:31:12,400 --> 00:31:14,240 Speaker 1: I think it was great for Argentina in the sense 519 00:31:14,280 --> 00:31:17,840 Speaker 1: that Argentina now has a much more manageable level of debt. 520 00:31:18,240 --> 00:31:21,000 Speaker 1: It's got a bond contract that really does make repayment 521 00:31:21,400 --> 00:31:23,960 Speaker 1: an option it makes. It can pay or not pay 522 00:31:24,360 --> 00:31:27,520 Speaker 1: depending upon its view of its financial situation and its 523 00:31:27,560 --> 00:31:32,600 Speaker 1: market access. So I think that it's um Argentina is 524 00:31:32,760 --> 00:31:36,080 Speaker 1: for the moment in the catbird seat, except that it 525 00:31:36,120 --> 00:31:38,240 Speaker 1: doesn't have the kind of market access it needs. It 526 00:31:38,280 --> 00:31:40,840 Speaker 1: doesn't have the kind of credibility it needs. And one 527 00:31:40,840 --> 00:31:45,760 Speaker 1: example of that is the Vakamrita. So this huge formation 528 00:31:45,760 --> 00:31:48,640 Speaker 1: of oil and gas, it's shaped like it's called Vahamwara, 529 00:31:48,720 --> 00:31:51,440 Speaker 1: and i've I've fractured the Spanish. But because it looks 530 00:31:51,480 --> 00:31:54,720 Speaker 1: from the sky like a dead cow um and it's 531 00:31:54,760 --> 00:31:59,000 Speaker 1: a it's a massive reserve of hydrocarbons that should have 532 00:31:59,000 --> 00:32:03,680 Speaker 1: been exploited, you know, through through drilling, through pipelines, through 533 00:32:04,320 --> 00:32:09,200 Speaker 1: exports over the last many decades. But because of Argentina 534 00:32:09,280 --> 00:32:13,240 Speaker 1: is fractious politics, it hasn't been. So you have a 535 00:32:13,400 --> 00:32:15,680 Speaker 1: you know, a country as as ever in the case 536 00:32:15,680 --> 00:32:19,560 Speaker 1: of Argentina that ought to be incredibly wealthy that isn't 537 00:32:19,760 --> 00:32:25,040 Speaker 1: because of its own peculiar psychology. I just remembered. I mean, 538 00:32:25,080 --> 00:32:29,360 Speaker 1: they did issue that hundred year bond, remember which which 539 00:32:29,520 --> 00:32:34,320 Speaker 1: is now do we have a quote on where is 540 00:32:34,360 --> 00:32:37,200 Speaker 1: that trading? Yeah? Well, so this was gonna be my 541 00:32:37,280 --> 00:32:41,440 Speaker 1: next question. So it's trading terribly at the moment um, 542 00:32:41,520 --> 00:32:44,760 Speaker 1: largely because of duration. You would expect to bond at 543 00:32:44,760 --> 00:32:47,680 Speaker 1: a hundred year maturity issued at a very low interest 544 00:32:47,760 --> 00:32:50,440 Speaker 1: rate to have like a high duration risk, and as 545 00:32:50,520 --> 00:32:53,520 Speaker 1: rates go up, it's going to get crushed. How much 546 00:32:53,560 --> 00:32:57,040 Speaker 1: are the pure interest rate dynamics, you know, setting aside 547 00:32:57,080 --> 00:33:00,000 Speaker 1: credit fundamentals, but just the dynamics of interest rates actually 548 00:33:00,080 --> 00:33:04,440 Speaker 1: going up and increasing payments for emerging markets? How much 549 00:33:04,480 --> 00:33:07,000 Speaker 1: is that a problem? It's always it's always a problem. 550 00:33:07,040 --> 00:33:09,080 Speaker 1: That's I think you described that Tracy at the very 551 00:33:09,200 --> 00:33:12,440 Speaker 1: beginning of the hour as prices for a new debt 552 00:33:12,480 --> 00:33:15,880 Speaker 1: go up, the ability to refinance goes down, and that's 553 00:33:15,920 --> 00:33:19,440 Speaker 1: where countries run into trouble. But the hundred of year, 554 00:33:19,920 --> 00:33:22,240 Speaker 1: maybe we should think about hundred of your bonds as 555 00:33:22,280 --> 00:33:25,400 Speaker 1: a bellweather. You know, it's a bad sign when somebody 556 00:33:25,480 --> 00:33:28,400 Speaker 1: is able to borrow, especially a country that doesn't have 557 00:33:29,000 --> 00:33:31,320 Speaker 1: a hundred year history of borrowing can borrow for a 558 00:33:31,400 --> 00:33:34,880 Speaker 1: hundred years. It's just that's just madness. So one of 559 00:33:34,880 --> 00:33:39,640 Speaker 1: the things you're known for at Elliott is basically I'm 560 00:33:39,640 --> 00:33:43,520 Speaker 1: thinking how to put this but creative, creative solutions to 561 00:33:43,880 --> 00:33:48,720 Speaker 1: pursuing payouts. And I remember, for instance, you brought racketeering 562 00:33:48,840 --> 00:33:52,440 Speaker 1: charges against a French bank. How do you and of 563 00:33:52,480 --> 00:33:55,720 Speaker 1: course there was the famous story of seizing the Argentine 564 00:33:55,800 --> 00:33:57,920 Speaker 1: naval ship and things like that, But how do you 565 00:33:57,960 --> 00:34:04,240 Speaker 1: actually come up with those sorts of ideas for pursuing payouts? 566 00:34:04,240 --> 00:34:06,360 Speaker 1: Because some of them are quite creative in the sense 567 00:34:06,400 --> 00:34:09,640 Speaker 1: that not everyone well no one had tried them before. 568 00:34:10,360 --> 00:34:13,839 Speaker 1: Most countries pay with they oh and whether they pay 569 00:34:13,880 --> 00:34:17,280 Speaker 1: it early on or later on, they have a willingness 570 00:34:17,320 --> 00:34:21,040 Speaker 1: to actually make good on their obligations. So we're talking 571 00:34:21,080 --> 00:34:25,880 Speaker 1: about the hardest cases, making the worst law and so 572 00:34:25,920 --> 00:34:29,880 Speaker 1: the very few countries that have a kind of cultural 573 00:34:29,920 --> 00:34:33,759 Speaker 1: indifference to making good on their obligations create a lot 574 00:34:33,800 --> 00:34:38,640 Speaker 1: of need and opportunity for creditors. And so that's where 575 00:34:38,680 --> 00:34:41,400 Speaker 1: the creativity comes in. When you when you have a 576 00:34:41,480 --> 00:34:45,439 Speaker 1: country that really doesn't want to pay what it owes, 577 00:34:46,040 --> 00:34:48,799 Speaker 1: you're in a position where you just have to keep 578 00:34:48,800 --> 00:34:53,560 Speaker 1: getting their attention. And the Argentine saga, which and again 579 00:34:53,600 --> 00:34:56,440 Speaker 1: it wasn't just Elliott Management, it was many firms that 580 00:34:56,480 --> 00:34:59,040 Speaker 1: were involved in in that over long period of time. 581 00:34:59,840 --> 00:35:03,160 Speaker 1: The goal was always to get Argentina to the table. 582 00:35:04,200 --> 00:35:09,200 Speaker 1: Because even though many creative attachments and arrests you mentioned 583 00:35:09,200 --> 00:35:13,760 Speaker 1: the Libertad lanes were arrested in France. Today the plane 584 00:35:13,760 --> 00:35:16,360 Speaker 1: of the President of Congo is under arrest and is 585 00:35:16,360 --> 00:35:20,680 Speaker 1: about to be auctioned. Uh. Sometimes people have attached oil cargoes. 586 00:35:20,960 --> 00:35:25,279 Speaker 1: You have all all sorts of creative avenues, but debt 587 00:35:25,320 --> 00:35:31,960 Speaker 1: cases don't get resolved through attachments and through execution against assets. 588 00:35:32,000 --> 00:35:36,440 Speaker 1: They always get resolved through settlement. So the goal is 589 00:35:36,480 --> 00:35:39,680 Speaker 1: always to get the attention of the debtor, but not 590 00:35:39,800 --> 00:35:44,360 Speaker 1: push them away. Unfortunately, sometimes creditors do things that do 591 00:35:44,480 --> 00:35:47,160 Speaker 1: end up pushing them away, and then the only opportunity 592 00:35:47,200 --> 00:35:50,080 Speaker 1: is really regime change. And that is what happened in 593 00:35:50,200 --> 00:35:53,960 Speaker 1: Argentina while Christina Kirchener was in charge. It had become 594 00:35:54,000 --> 00:35:58,720 Speaker 1: impossible because she loved calling creditors vultures, and she loved 595 00:35:58,800 --> 00:36:02,440 Speaker 1: her stature as coman who was standing up against them. Well, 596 00:36:02,640 --> 00:36:05,000 Speaker 1: just on this note, I mean, is there anything that 597 00:36:05,040 --> 00:36:07,919 Speaker 1: you regret doing or something that you would have done 598 00:36:07,920 --> 00:36:11,239 Speaker 1: differently with the benefit of hindsight. As an investor, you 599 00:36:11,280 --> 00:36:14,399 Speaker 1: always regret not buying more of the things that did well. 600 00:36:15,880 --> 00:36:19,320 Speaker 1: I want to actually go back to, uh, the discussion 601 00:36:19,360 --> 00:36:22,480 Speaker 1: of the novelty that is China's role as the sort 602 00:36:22,520 --> 00:36:25,520 Speaker 1: of very senior creditor, you know when you when when I, 603 00:36:25,640 --> 00:36:29,480 Speaker 1: you know, the One Belt, One Road initiative first sort 604 00:36:29,520 --> 00:36:31,439 Speaker 1: of came on my radar or something I thought about 605 00:36:31,440 --> 00:36:33,960 Speaker 1: it seemed like, well, this is like, you know, a 606 00:36:34,040 --> 00:36:37,720 Speaker 1: strategic act of foreign policy. So it's like, yes, you invest, 607 00:36:37,960 --> 00:36:42,439 Speaker 1: you know, China invest in infrastructure in numerous countries, but 608 00:36:42,480 --> 00:36:45,360 Speaker 1: you know, for part like foreign policy influence and to 609 00:36:45,400 --> 00:36:48,560 Speaker 1: build up a trading partner and so forth. Is it 610 00:36:48,640 --> 00:36:54,080 Speaker 1: surprising that instead it's taken such a hard line simply 611 00:36:54,120 --> 00:36:56,360 Speaker 1: on the question of being paid back, because if you 612 00:36:56,400 --> 00:36:59,240 Speaker 1: do think, like, okay, is this about or I would 613 00:36:59,239 --> 00:37:02,920 Speaker 1: have thought that if this is about extending China's foreign 614 00:37:02,960 --> 00:37:07,120 Speaker 1: policy reach or extending it's just sort of deepening its 615 00:37:07,160 --> 00:37:10,840 Speaker 1: relationships with countries all over the world, across Asia, across Africa, 616 00:37:11,280 --> 00:37:14,960 Speaker 1: that it would have been more conciliatory on the restructuring 617 00:37:15,120 --> 00:37:19,520 Speaker 1: side to maintain those relationships. Uh um, I agree with 618 00:37:19,560 --> 00:37:23,359 Speaker 1: you that that that would make sense for China if 619 00:37:24,040 --> 00:37:26,600 Speaker 1: it wants to be part of um, you know, our 620 00:37:26,640 --> 00:37:31,719 Speaker 1: current Western liberal tradition and system. But China gives no 621 00:37:31,760 --> 00:37:35,560 Speaker 1: indication of wanting part of that system. China has, I think, 622 00:37:35,600 --> 00:37:38,399 Speaker 1: a very different view, has a different system. It wants 623 00:37:38,400 --> 00:37:41,600 Speaker 1: to go its own way, and if it can disadvantage 624 00:37:41,800 --> 00:37:46,839 Speaker 1: and crush other creditors in the course of restructurings, that 625 00:37:46,920 --> 00:37:49,640 Speaker 1: appears to be what it wants to do. I think 626 00:37:49,760 --> 00:37:53,600 Speaker 1: if we really can't talk enough about China and the 627 00:37:53,680 --> 00:37:57,200 Speaker 1: role of China in developing economies on on every level, 628 00:37:57,560 --> 00:38:01,799 Speaker 1: from the perspective of controlling natural horses, from the perspective 629 00:38:01,960 --> 00:38:04,480 Speaker 1: of being a direct foreign investor, from the perspective of 630 00:38:04,520 --> 00:38:08,840 Speaker 1: being a lender, China will be the dominant the dominant 631 00:38:08,960 --> 00:38:13,000 Speaker 1: question for the next several decades unless things change, and 632 00:38:13,040 --> 00:38:16,520 Speaker 1: it's unclear what could cause anything to change. Because China 633 00:38:16,560 --> 00:38:20,560 Speaker 1: still has the ability to pump out huge amounts of 634 00:38:20,600 --> 00:38:25,400 Speaker 1: money and people to develop projects around the world. Should 635 00:38:25,760 --> 00:38:30,080 Speaker 1: governments in the US and Europe be more proactive or 636 00:38:30,120 --> 00:38:34,840 Speaker 1: be thinking more aggressively than they are about not seeding 637 00:38:34,920 --> 00:38:37,880 Speaker 1: all of this influence in various developing markets to China. 638 00:38:38,280 --> 00:38:41,360 Speaker 1: I think there's no question that that's the case. But 639 00:38:41,880 --> 00:38:45,279 Speaker 1: it's uh, can you imagine Western governments being having a 640 00:38:45,320 --> 00:38:49,560 Speaker 1: cohesive and coherent policy on any on any topic, let 641 00:38:49,600 --> 00:38:54,439 Speaker 1: alone a African development policy. So so let's just take 642 00:38:54,480 --> 00:38:59,560 Speaker 1: the simplest possible question. You're you're a You're the G seven, 643 00:39:00,320 --> 00:39:03,880 Speaker 1: and you know that China is the big dog, and 644 00:39:03,960 --> 00:39:06,839 Speaker 1: you know they've invested in lent huge amounts of money. 645 00:39:07,600 --> 00:39:09,839 Speaker 1: You just want to see the contracts. You just want 646 00:39:09,880 --> 00:39:16,279 Speaker 1: some transparency. So Western governments should be insisting as a 647 00:39:16,320 --> 00:39:20,680 Speaker 1: condition of any restructuring that involves sovereign debt, whether it's 648 00:39:20,719 --> 00:39:24,000 Speaker 1: private sector or public sector, that that all the creditors 649 00:39:24,040 --> 00:39:26,160 Speaker 1: come to the table and and put their put out 650 00:39:26,160 --> 00:39:30,040 Speaker 1: their cards and show what they've got and that would 651 00:39:30,040 --> 00:39:34,440 Speaker 1: seem to be a very easy position to coalesce around. 652 00:39:34,880 --> 00:39:37,680 Speaker 1: But will it be just on the topic of China, 653 00:39:37,760 --> 00:39:40,480 Speaker 1: And this is something else that's come up recently in 654 00:39:40,520 --> 00:39:44,040 Speaker 1: a different way, But there is a sense out there 655 00:39:44,239 --> 00:39:47,960 Speaker 1: that some of China's lending has been exploitative in one 656 00:39:48,000 --> 00:39:51,440 Speaker 1: way or another. So we haven't seen the contracts exactly, 657 00:39:51,760 --> 00:39:55,120 Speaker 1: but there's a suspicion that, for instance, a country might 658 00:39:55,160 --> 00:39:58,600 Speaker 1: be giving up some portion of sovereign independence in order 659 00:39:58,680 --> 00:40:01,279 Speaker 1: to get money from China to build a massive port 660 00:40:01,760 --> 00:40:06,839 Speaker 1: something like that. And we've also seen some noises around um, 661 00:40:06,920 --> 00:40:09,560 Speaker 1: you know, on the other side of the world, Haiti 662 00:40:09,760 --> 00:40:12,960 Speaker 1: and the idea of reparations. And you've already mentioned the 663 00:40:13,040 --> 00:40:15,680 Speaker 1: V word, which is vulture funds, and when it comes 664 00:40:15,719 --> 00:40:18,640 Speaker 1: to distress debt investors, there is a sense that they 665 00:40:18,800 --> 00:40:22,640 Speaker 1: can be exploitative in some way and they're ringing money 666 00:40:22,840 --> 00:40:27,000 Speaker 1: out of poor nations. How would you respond to that 667 00:40:27,160 --> 00:40:30,560 Speaker 1: criticism and how are you thinking around the idea of 668 00:40:31,120 --> 00:40:35,640 Speaker 1: reparations for sovereign debt injustices in general? The word that 669 00:40:35,680 --> 00:40:38,279 Speaker 1: comes to mind when we embark on this kind of 670 00:40:39,000 --> 00:40:44,919 Speaker 1: conversation is the C word, which is corruption and I don't. 671 00:40:45,000 --> 00:40:48,560 Speaker 1: I don't think there has ever been a a sovereign 672 00:40:48,600 --> 00:40:51,960 Speaker 1: debt crisis or sovereign debt problems where corruption isn't an 673 00:40:52,000 --> 00:40:56,560 Speaker 1: underlying issue. And this is another place where Western governments 674 00:40:56,640 --> 00:41:00,160 Speaker 1: could take a very insistent role, a place where I 675 00:41:00,280 --> 00:41:03,080 Speaker 1: m F could take a very insistent role and and 676 00:41:03,200 --> 00:41:07,279 Speaker 1: focus on corruption and not just the existence of it 677 00:41:07,480 --> 00:41:10,759 Speaker 1: or the past effects of it, but the possibility of 678 00:41:10,800 --> 00:41:15,520 Speaker 1: recovering ill gotten gains. I wonder, I'm thinking out loud now, 679 00:41:15,560 --> 00:41:19,000 Speaker 1: I wonder whether what's happening with sanctions in the case 680 00:41:19,040 --> 00:41:23,440 Speaker 1: of Russia might be a watershed because Western governments have 681 00:41:23,560 --> 00:41:29,080 Speaker 1: become very willing to sanction the vast numbers of individuals 682 00:41:30,520 --> 00:41:35,719 Speaker 1: around Vladimir Putin go after their their bank accounts, their companies, 683 00:41:36,320 --> 00:41:39,760 Speaker 1: notably their yachts and their planes. And at this point, 684 00:41:39,920 --> 00:41:42,600 Speaker 1: at just point, at this point, most have just been ceased, 685 00:41:42,640 --> 00:41:46,279 Speaker 1: they haven't been confiscated. But I've never been involved in 686 00:41:46,360 --> 00:41:49,919 Speaker 1: a in a sovereign debt situation in which the if 687 00:41:49,920 --> 00:41:54,400 Speaker 1: you were really thinking about the balance sheet of a country, 688 00:41:55,320 --> 00:41:58,320 Speaker 1: corruption and still gotten gains shouldn't have been an issue. 689 00:41:58,520 --> 00:42:00,759 Speaker 1: And just if we just imagine a world in which 690 00:42:00,800 --> 00:42:05,319 Speaker 1: creditors became in a way private attorneys general, and we're 691 00:42:05,400 --> 00:42:08,160 Speaker 1: licensed to go after people that have been milking a 692 00:42:08,239 --> 00:42:11,920 Speaker 1: country for a decade after decade, which unfortunately is all 693 00:42:11,960 --> 00:42:15,319 Speaker 1: too prevalent. You just have to look at transparency international 694 00:42:15,719 --> 00:42:19,400 Speaker 1: rankings to understand that whether the whole dynamic wouldn't change 695 00:42:19,640 --> 00:42:22,360 Speaker 1: in a very positive way. Just to push this a 696 00:42:22,360 --> 00:42:25,840 Speaker 1: little further in theory, if you have a country that 697 00:42:25,960 --> 00:42:28,960 Speaker 1: has a highly corrupt government, you know, and then you 698 00:42:29,000 --> 00:42:32,000 Speaker 1: have a regime change, I mean, I guess part of 699 00:42:32,000 --> 00:42:34,520 Speaker 1: the argument seems to me that, well, the citizens of 700 00:42:34,560 --> 00:42:38,200 Speaker 1: the country shouldn't be like punished in perpetuity for years 701 00:42:38,280 --> 00:42:42,000 Speaker 1: or future governments shouldn't have to make this decision about well, 702 00:42:42,040 --> 00:42:43,719 Speaker 1: are we going to pay back the debt of the 703 00:42:43,840 --> 00:42:47,320 Speaker 1: press corrupt government, or are we going to feed our people? 704 00:42:47,360 --> 00:42:49,920 Speaker 1: Are we gonna build hospitals? Are we going to build infrastructure? 705 00:42:50,040 --> 00:42:52,240 Speaker 1: And it seems like you still have this like problem 706 00:42:52,280 --> 00:42:54,000 Speaker 1: where okay, even if you were to root out this 707 00:42:54,080 --> 00:42:58,760 Speaker 1: corruption that the citizens who were just they're often probably 708 00:42:58,840 --> 00:43:01,759 Speaker 1: exploited themselves in many cases, are then still paying the 709 00:43:01,800 --> 00:43:05,080 Speaker 1: price for made. This gets to the odious debt conversation 710 00:43:05,120 --> 00:43:07,080 Speaker 1: that we've had around a rock and others, but are 711 00:43:07,080 --> 00:43:11,040 Speaker 1: still paying the price regardless of their culpability. It's bad. 712 00:43:11,080 --> 00:43:16,440 Speaker 1: Government is is unfortunately a huge, huge problem, and I'm 713 00:43:16,480 --> 00:43:20,520 Speaker 1: I'm completely sympathetic to the idea that people that live 714 00:43:20,560 --> 00:43:24,960 Speaker 1: in these in these horribly corrupt and opaque regimes are 715 00:43:25,080 --> 00:43:28,080 Speaker 1: are punished. But how do you break the cycle. It 716 00:43:28,200 --> 00:43:32,120 Speaker 1: seems like, getting back to your other point that the 717 00:43:32,320 --> 00:43:37,360 Speaker 1: entire system of private investment in sovereign debt, particularly sovereign 718 00:43:37,400 --> 00:43:40,959 Speaker 1: hard currency debt, is just deeply flawed, and he gets 719 00:43:40,960 --> 00:43:42,560 Speaker 1: back to this idea, it's like, why do we even 720 00:43:42,600 --> 00:43:45,400 Speaker 1: have all of these private creditors out there in the 721 00:43:45,400 --> 00:43:48,520 Speaker 1: first place, or such a large number of private creditors 722 00:43:49,160 --> 00:43:52,400 Speaker 1: at all in the role of sovereign finance. Well, investors 723 00:43:52,440 --> 00:43:57,120 Speaker 1: are are fundamentally optimistic. And there's a whole other level 724 00:43:57,320 --> 00:43:59,719 Speaker 1: of investment that we haven't talked about, which is and 725 00:43:59,800 --> 00:44:02,280 Speaker 1: you has mentioned this show, which is the foreign direct investment. 726 00:44:02,680 --> 00:44:07,160 Speaker 1: And you have recent cases in particularly involving India, world's 727 00:44:07,680 --> 00:44:12,760 Speaker 1: largest democracy, which when it's faced with arbitration awards because 728 00:44:12,800 --> 00:44:17,720 Speaker 1: it's confiscated property, decides to vilify investors and avoid payment. 729 00:44:18,239 --> 00:44:20,920 Speaker 1: So it's Uh, it applies not just to debt but 730 00:44:21,040 --> 00:44:25,319 Speaker 1: direct foreign direct investment. And this fundamental optimism on the 731 00:44:25,400 --> 00:44:28,600 Speaker 1: part of investors because we are you know, every every 732 00:44:28,640 --> 00:44:32,080 Speaker 1: time you lend money or invest money, you're being optimistic 733 00:44:32,120 --> 00:44:34,799 Speaker 1: about your your not just your own process and your 734 00:44:34,800 --> 00:44:38,719 Speaker 1: own analysis, but the capacity and willingness of your investee 735 00:44:38,719 --> 00:44:42,960 Speaker 1: and your or your bar word to on their obligations. 736 00:44:42,960 --> 00:44:47,279 Speaker 1: But to the point about reparations, this is it's it's 737 00:44:47,280 --> 00:44:50,200 Speaker 1: an issue that's on the table. It's obviously being discussed, 738 00:44:50,239 --> 00:44:53,240 Speaker 1: but I think it can't be discussed in a vacuum, 739 00:44:53,320 --> 00:44:55,400 Speaker 1: and it really has to be discussed in the context. 740 00:44:55,440 --> 00:44:59,040 Speaker 1: And you look at a country like Haiti where elites 741 00:44:59,040 --> 00:45:04,160 Speaker 1: have really destroyed that country by milking it consistently over 742 00:45:04,280 --> 00:45:07,560 Speaker 1: decade after decade after decade. How can you talk about 743 00:45:07,560 --> 00:45:12,880 Speaker 1: reparations without going after the the elites they have stolen 744 00:45:12,880 --> 00:45:15,920 Speaker 1: the country blind? This is how you get there. I'm 745 00:45:15,960 --> 00:45:18,279 Speaker 1: not quite sure, but I know that you have to 746 00:45:18,280 --> 00:45:20,920 Speaker 1: get there to have a fair and sensible conversation about 747 00:45:20,920 --> 00:45:23,759 Speaker 1: all those questions. All right, Jay, it's been so great 748 00:45:23,800 --> 00:45:26,000 Speaker 1: having you on the show. Thank you so much. That's 749 00:45:26,120 --> 00:45:29,600 Speaker 1: Jane Newman, formerly of Elliott and the author of the 750 00:45:29,680 --> 00:45:33,000 Speaker 1: novel under Money in book Stories. Now, Je, thank you 751 00:45:33,040 --> 00:45:48,000 Speaker 1: so much. That was great, Thank you, thank you, Joe. 752 00:45:48,160 --> 00:45:51,319 Speaker 1: That was a really interesting conversation, I thought, and one 753 00:45:51,360 --> 00:45:53,000 Speaker 1: of the things that stands out to me, and I 754 00:45:53,040 --> 00:45:57,360 Speaker 1: know the benefit of hindsight is of course, but the 755 00:45:57,520 --> 00:46:00,719 Speaker 1: Argentine hundred year bond just a side whenever you see 756 00:46:00,719 --> 00:46:04,280 Speaker 1: a country without a hundred year history of issuing debt, 757 00:46:04,440 --> 00:46:07,320 Speaker 1: issuing for a century and that supporting it was a 758 00:46:07,440 --> 00:46:09,680 Speaker 1: really crazy time. I mean, I got, like, you know, 759 00:46:09,680 --> 00:46:11,960 Speaker 1: there was also the Austrian one, but like, okay, I 760 00:46:12,040 --> 00:46:16,080 Speaker 1: understood that's just a normal long direction. As a half Austrian, 761 00:46:16,239 --> 00:46:18,880 Speaker 1: we should leave Austria alone, you know. But yeah, there 762 00:46:18,880 --> 00:46:21,479 Speaker 1: were there's sort of two famous century bonds. I was also, 763 00:46:21,480 --> 00:46:23,719 Speaker 1: I mean, there were a lot of interesting things. The 764 00:46:23,719 --> 00:46:26,800 Speaker 1: the unique novelty well, actually, you know what I was 765 00:46:26,880 --> 00:46:30,759 Speaker 1: very struck by is jay is point that maybe this 766 00:46:30,840 --> 00:46:35,759 Speaker 1: whole system of borrowing hard currency debt is flawed. And 767 00:46:35,960 --> 00:46:39,360 Speaker 1: you know, of course we've had the MMT conversations and 768 00:46:39,400 --> 00:46:41,120 Speaker 1: all the people saying, well, you know the first thing 769 00:46:41,160 --> 00:46:43,480 Speaker 1: that these countries should do is stop borrowing in dollars, 770 00:46:43,480 --> 00:46:46,919 Speaker 1: stop borrowing in currencies that they can't print themselves, whether 771 00:46:46,920 --> 00:46:48,959 Speaker 1: they be dollars or euros, that would at least get 772 00:46:49,400 --> 00:46:53,400 Speaker 1: somewhere some progress. So it's interesting to hear a a 773 00:46:53,480 --> 00:46:55,640 Speaker 1: veteran of the actual industry kind of say the same 774 00:46:55,640 --> 00:46:57,680 Speaker 1: thing from the other perspective, and you managed to bring 775 00:46:57,680 --> 00:47:00,840 Speaker 1: it to m M. Didn't hear our? Right? Shall we 776 00:47:00,880 --> 00:47:02,960 Speaker 1: leave it there? Let's leave it there? Okay. This has 777 00:47:03,000 --> 00:47:06,360 Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway. 778 00:47:06,440 --> 00:47:08,799 Speaker 1: You can follow me on Twitter at Tracy Alloway and 779 00:47:08,800 --> 00:47:10,960 Speaker 1: I'm Joe Why Isn't All? You can follow me on 780 00:47:11,000 --> 00:47:14,640 Speaker 1: Twitter at the Stalwart. Follow our guest on Twitter, Jane Newman. 781 00:47:14,760 --> 00:47:18,440 Speaker 1: He's at Jane Newman. Follow our producer Carmen Rodriguez at 782 00:47:18,520 --> 00:47:22,080 Speaker 1: Carmen Arman. Followed the Bloomberg head of podcast Brancesca Leav 783 00:47:22,320 --> 00:47:25,600 Speaker 1: at Francesca Today, and check out all of our podcasts 784 00:47:25,600 --> 00:47:29,280 Speaker 1: at Bloomberg under the handle head Podcasts. Thanks for listening.