Speaker 1: Hello, and welcome to another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe wisnal So Joe, Uh,
Speaker 1: I think it's fair to say that the world is
Speaker 1: in a pretty bad place right now. I would not disagree. Um,
Speaker 1: we just had jobless claims. Those are still pretty bad. Obviously,
Speaker 1: we have a huge question mark over the U S economy.
Speaker 1: Europe has been doing very poorly as well. But I
Speaker 1: think it's also fair to say that some parts of
Speaker 1: the world are doing worse than others. Yeah, it's really
Speaker 1: interesting because, of course you have to disentangle the sort
Speaker 1: of health crisis specifically from the economic crisis. There are
Speaker 1: parts of the world that may actually be doing better, uh,
Speaker 1: in a surprising sense in terms of the outbreak of
Speaker 1: the public health crisis the virus, but obviously not getting
Speaker 1: spared at all from the fact that so much commerce
Speaker 1: is that a virtual, virtual standstill. So even even places
Speaker 1: that yeah, well the numbers don't seem as bad as
Speaker 1: the UK or the U S from an economic situation,
Speaker 1: they may be even worth potentially. Yeah, but you also
Speaker 1: have some parts of the world where both the health
Speaker 1: crisis and the financial crisis is pretty bad. And I'm
Speaker 1: thinking specifically of emerging markets. So these are countries that
Speaker 1: don't necessarily have a really developed health system, and they
Speaker 1: certainly don't have a lot of money necessarily to suddenly
Speaker 1: direct to containing a pandemic. And now, of course they're
Speaker 1: dealing with an economic crisis that is making the money
Speaker 1: that they have even well reducing the amount of money
Speaker 1: available to them to fight the crisis. So it's really
Speaker 1: like a double whammy at this point. Right, that's exactly right.
Speaker 1: Relatively rich countries or rich countries like the US, for
Speaker 1: as bad as we may be doing on the public
Speaker 1: health side, there's no real financial constraint to spending a
Speaker 1: lot of money, both in terms of helping people pay
Speaker 1: their bills and also building out a public health system.
Speaker 1: It's more of a political capacity constraint. But some countries,
Speaker 1: obviously they simply don't have the fiscal capacity to do
Speaker 1: what's necessary to really fight the health front, even if
Speaker 1: there worthy desire or the political capacity to do so. Right, So,
Speaker 1: as bad as it gets in the U S, don't
Speaker 1: forget that the US government can always issue treasuries. And
Speaker 1: why didn't its deficit for extra fiscal spending, um Sorry
Speaker 1: that sounded flippant, but I don't intend it to be.
Speaker 1: That actually is UH an advantage. Okay, well, so today
Speaker 1: we're gonna be digging into emerging markets. We're going to
Speaker 1: talk about some of those fiscal dynamics, but we're especially
Speaker 1: going to zoom in on this debt question and how
Speaker 1: emerging markets can actually handle the spending that they need
Speaker 1: or raise the money that they need in order to
Speaker 1: fight the coronavirus. Exactly right. So, I mean we've talked
Speaker 1: about this before, we had a discussion on it. We
Speaker 1: talked to brand Setser several weeks ago. That was before
Speaker 1: some of the I think I'm f meetings, but it's
Speaker 1: still I think many people still sense that there is
Speaker 1: much more that needs to be done. And again, because
Speaker 1: of the nature viruses and also economic collapses, I think
Speaker 1: time really is of the essence to move before extreme
Speaker 1: lasting damage takes place. Okay, Well, on that note, let's
Speaker 1: get straight to it. Then. I'm really happy to say
Speaker 1: that we have not one, not two, but three guests
Speaker 1: on today's episode. Two of them have been with odd
Speaker 1: thoughts before one is brand new. I'm going to introduce
Speaker 1: them all. Uh Midto Glate is a professor of law
Speaker 1: at Duke Universe City and of course one of the
Speaker 1: world's foremost experts on sovereign debt restructurings. Lee book High
Speaker 1: is the legendary sovereign debt lawyer, now retired from Cleary
Speaker 1: Gottlie but an honorary professor at the University of Edinburgh,
Speaker 1: and Ugo Panizza is Professor of International Economics at the
Speaker 1: Graduate Institute in Geneva. All three of them and X
Speaker 1: are experts in their fields and they've come up with
Speaker 1: a proposal for how emerging markets might be able to
Speaker 1: weather this crisis. So thank you all for coming on.
Speaker 1: Thank you, thank you, thank you. Why don't we uh
Speaker 1: set out the scene. I guess how much trouble are
Speaker 1: emerging markets actually in at the moment? Very big trouble,
Speaker 1: if that's the question. If you one, they can give
Speaker 1: you a couple of numbers. So we run some estimates
Speaker 1: and according to our estimates, emerging markets need to um
Speaker 1: service that in the next twelve months for nearly nine
Speaker 1: million dollars. We so this is the public sector and
Speaker 1: this is the external that of the public sector of
Speaker 1: this emerging market country. So this is UH, this is
Speaker 1: a large amount of money, and there was a not
Speaker 1: paid by the Prime Minister of Ethiopia in the in
Speaker 1: the New York Times last week, we basically said that
Speaker 1: some in Ethiopia and some other discontents, they need to
Speaker 1: face the choice whether to services that or you know,
Speaker 1: spent for health care of the their own citizens. So
Speaker 1: that's a difficult choice mhm. So already there are countries
Speaker 1: that have been forced just in these in the short
Speaker 1: you know, it's really just been a couple of months.
Speaker 1: Already we're seeing companies forced or started, countries forced to
Speaker 1: make one priority over the other, either stay good on
Speaker 1: their external public debt or do the necessary spending to
Speaker 1: keep the virus in check. Yes, there there have been
Speaker 1: a hundred countries that have asked the IMF for emergency
Speaker 1: financial assistance. That's more than half the membership of the IMF.
Speaker 1: But that money will not be enough and in for
Speaker 1: some countries not nearly enough to defray the extra expenses
Speaker 1: that are coming with this health crisis. Therefore, they're faced
Speaker 1: with its choice of having to divert funds that had
Speaker 1: been earmarked for other governmental purposes, including debt service, to
Speaker 1: divert those funds towards the expenses of dealing with this pandemic.
Speaker 1: If I can just add one number. So the the
Speaker 1: I m F forecast growth for all of one ninety
Speaker 1: member countries, and at the peak of the global financial crisis,
Speaker 1: it forecasted growth positive growth for seventy seven countries. This
Speaker 1: year is forecasting positive growth for nine countries. This is
Speaker 1: really and even for these nine plants, they are forecasting
Speaker 1: very low positive growth, which nobody about supercent I'm actually
Speaker 1: surprised at nine countries forecast for positive growth. Okay, Lee,
Speaker 1: you mentioned the number of countries that have approached the
Speaker 1: I m F for help. We've also had an agreement
Speaker 1: from the G twenty for a temporary debt stand still
Speaker 1: I want to bring in mid to maybe you could
Speaker 1: talk about that and what's involved in that stand still.
Speaker 1: You know, there have been some efforts to think about
Speaker 1: the global implications of the current crisis, and one of
Speaker 1: the efforts that seemed very positive started with and I
Speaker 1: MF World Bank Call for Action and was then followed
Speaker 1: by the G twenty, you know, announcing that there would
Speaker 1: be a debt moratorium for the rest of the year
Speaker 1: on debts on payments that are owed to the bilaterals,
Speaker 1: and importantly in that there was a request that the
Speaker 1: private creditor sector also provide similar relief, and there had
Speaker 1: been indications that they were willing. The Institute of International
Speaker 1: Finance sort of a lobbying group for the private creditors,
Speaker 1: had agreed that yes, we should provide relief to the
Speaker 1: poorest countries in the world altogether, all on comparable terms,
Speaker 1: and this seemed like a very positive sign that at
Speaker 1: least we were beginning to think about this providing relief
Speaker 1: very quickly. Unfortunately, as of today, this seems like it is,
Speaker 1: in my skeptical viewpoint, all completely falling apart. All of
Speaker 1: those enthusiastic statements about providing relief for the rest of
Speaker 1: the year UH seem to be going nowhere. I think
Speaker 1: the official sector will provide the relief. I think the
Speaker 1: private sector is basically trying to delay and not provide
Speaker 1: any relief whatsoever. I'm sure I hope that they call
Speaker 1: in and yell at us and say that no, they
Speaker 1: actually want to provide relief, but I don't see it
Speaker 1: going anywhere. Well, Lee, I'm thinking about you know, Tracy,
Speaker 1: and I talked with you um several months ago at
Speaker 1: one of our live events and these sort of these
Speaker 1: debt renegotiations. Even in the simplest terms, if it's just
Speaker 1: one country trying to renegotiate some of its debt, they
Speaker 1: seem to you know, these renegotiations can go on for years,
Speaker 1: with different classes of creditors who own different types of
Speaker 1: bonds um all trying to get their share. I can
Speaker 1: only imagine that it's orders of magnitude more complex when
Speaker 1: it trying to basically do a solution for every country
Speaker 1: in the world at the same time. Well, the way
Speaker 1: we've been thinking about it is that we have an
Speaker 1: immediate emergency, and that is the need to get funding
Speaker 1: into the hands of these countries to deal with the
Speaker 1: pandemic entering. They were a handful of countries who had
Speaker 1: already acknowledged that they needed a full scale debt restructuring Argentina, Lebanon, Ecuador, Venezuela. Obviously,
Speaker 1: we will leave with a much longer list of countries
Speaker 1: that need a full scale debt restructuring, but that's not
Speaker 1: the focus right now. The immediate focus in the and
Speaker 1: and the paper that my colleagues and I produced was
Speaker 1: intended to find a way quickly and uniformly two free
Speaker 1: up liberate cash that these countries could use for COVID
Speaker 1: nineteen amelioration. This program that me too has described involving
Speaker 1: the official sector and we hoped the private sector, was
Speaker 1: all intended to focus on that. Everyone knows that within
Speaker 1: a relatively short space of time we will have to
Speaker 1: confront the broader issue that you've just mentioned. How does
Speaker 1: one deal with full scale debt restructurings, because many countries
Speaker 1: will exit the COVID period with unsustainable debt stocks. That
Speaker 1: will be a challenge, frankly, that we have not faced
Speaker 1: since the and the Latin American debt crisis and the
Speaker 1: world it was very different back then. Mh. I want
Speaker 1: to get to that point, but before we do, perhaps
Speaker 1: one of you could just walk us through what your
Speaker 1: proposal actually entails. As you mentioned, you know, maybe it's
Speaker 1: not that difficult to have a debt stand still for
Speaker 1: bilateral sovereign creditors. Not that difficult. Maybe maybe that's sort
Speaker 1: of overegging it. But there is a sticking point in
Speaker 1: the form of the private creditors. So what's your solution here?
Speaker 1: Why don't why don't I walk you through it? It's
Speaker 1: it's really quite straightforward. We propose that the dead are
Speaker 1: countries that need this relief, and not all of them will.
Speaker 1: Some of them will not be afflicted by the epidemic
Speaker 1: as badly as others, and some may continue to have
Speaker 1: or at least have hopes of having market access. But
Speaker 1: for the rest, we propose that they open what we
Speaker 1: call a central credit Facility CCF with a multilateral development
Speaker 1: bank that could be the World Bank, but it could
Speaker 1: be one of the regional development banks African Development Bank,
Speaker 1: Asian Development Back, and so forth. The country would then
Speaker 1: divert the payments that would normally have gone towards interest
Speaker 1: payments on external debt. It would divert those payments into
Speaker 1: the central credit facility. As the amounts arrive at the CCF,
Speaker 1: the administrator the multilateral Development bank would credit the relevant
Speaker 1: creditor with a participation interest in the CCF, just like
Speaker 1: a syndicated loan. The country could then borrow from the
Speaker 1: CCF to deal with COVID nineteen related expenses. This is
Speaker 1: a critical feature because the multilateral Development Bank would be
Speaker 1: responsible for monitoring the use of that money. No individual
Speaker 1: commercial creditor or even group of commercial creditors is going
Speaker 1: to be in a position to undertake that monitoring task.
Speaker 1: And the last thing anyone wants is money that has
Speaker 1: been effectively contributed by creditors to deal with this pandemic
Speaker 1: being siphoned away for other purposes. Put it that way,
Speaker 1: so the multi ladder of Development Bank would be responsible
Speaker 1: for that. The We don't specify what the financial terms
Speaker 1: of the CCF should be, but common sense is that
Speaker 1: they should be. That the repayment terms for the CCFP
Speaker 1: should not put further burden on the post COVID financial
Speaker 1: position of these countries. In a nutshell, that's the nut
Speaker 1: Do any of you have an estimate for how much
Speaker 1: money that could actually free up? Its kind of ends
Speaker 1: on whether the bilateral creditors are also going to participate
Speaker 1: in this bugle would have a better idea. I think
Speaker 1: of the numbers, the number is the maximum number. It's
Speaker 1: what I gave you before. If you only focus on payment,
Speaker 1: you on long term death. The maximum number is what
Speaker 1: I gave you before. That of course I gave it
Speaker 1: to you wrong, because I always get confused between millions
Speaker 1: and billions. I gave you a number of about nine millions,
Speaker 1: actually nine hundred billions. That's well that's the maximum amount
Speaker 1: which is owed by all emerging and developing countries. Clearly,
Speaker 1: as Lee said, not all countries would need this type
Speaker 1: of help, So is this sort of an upper bound
Speaker 1: UH and and the amount varies from from the country
Speaker 1: to country. But that's sort of let's say, the the
Speaker 1: end alope, the maximum memberlope. So we haven't, as Lead
Speaker 1: pointed out, where just this first stage which we need
Speaker 1: immediate cash for these countries to fight the health crisis. Obviously,
Speaker 1: the question of where they will be in terms of
Speaker 1: dead stock sustainability, that's probably a question for next year,
Speaker 1: and that's gonna be infinitely more complex. But in terms
Speaker 1: of implementing the plan put forth by the three of
Speaker 1: you to free up this cash through UH sort of
Speaker 1: international development a bank or multiple banks, who are the
Speaker 1: actors that need to make this happen, just to coordinate
Speaker 1: this first step and why is it proving to be
Speaker 1: so challenging to coordinate them? Initially it seemed like everybody
Speaker 1: was going to cooperate, the key actors in coordinate such
Speaker 1: an effort because we do not have anything like an
Speaker 1: international sovereign bankruptcy scheme. UH. This all has to be
Speaker 1: done in a cooperative fashion. And as the historical matter,
Speaker 1: the key actors have always been the I m F
Speaker 1: and the multilaterals. Here, the I m F and the
Speaker 1: World Bank, through their leadership, took early action. I think
Speaker 1: marchy was when they put out their call to action
Speaker 1: and the private creditor group initially seemed to support this,
Speaker 1: which then resulted in the G twenty taking concrete actions.
Speaker 1: So end of March early April, it looked like we
Speaker 1: were going to be able to provide on a global
Speaker 1: scale relief to basically half the world for the rest
Speaker 1: of massive relief as Google put the numbers in, and
Speaker 1: then as the question of implementation, so our team was thinking,
Speaker 1: you know, everybody's cooperating, this is just a matter of
Speaker 1: figuring out how do we enable the cooperation. And as
Speaker 1: we were working on the enabling the co operation, the
Speaker 1: willingness to cooperate gradually diminished. Now there are many motivations
Speaker 1: one can ascribe to this, or maybe this is just
Speaker 1: the natural process, but uh, you know, as the G
Speaker 1: twenty said we will provide official sector relief to the
Speaker 1: poorest countries, then the free rider tendencies blossomed, and I
Speaker 1: suspect that at least some in the private creditor world said, oh, well,
Speaker 1: if the official sector will provide all this relief, maybe
Speaker 1: we don't need to provide relief. Maybe we need to explain,
Speaker 1: you know, we didn't really mean we were going to
Speaker 1: provide relief. We want, you know, proper compensation. Oh. You know,
Speaker 1: many of these countries actually can borrow it. Market rates
Speaker 1: are about market rates, and maybe we should just let
Speaker 1: them borrow. And maybe we have fiduciary obligations, even though
Speaker 1: many of the people have spoken to don't even understand
Speaker 1: what fiduciary obligations are. Uh. So it is looking like
Speaker 1: the official sector will have to provide the temporary relief.
Speaker 1: It won't be enough private Uh. Many countries who have
Speaker 1: access will continue to borrow, even though I think they
Speaker 1: should not borrow as this stage. If you read their
Speaker 1: risk disclosures, you would think they should not borrow. And
Speaker 1: then the debt restructuring when it comes, will come earlier
Speaker 1: than it should and will be brutal. I do want
Speaker 1: to talk about the issuance that we are seeing from
Speaker 1: emerging markets, but before we do, I understand the free
Speaker 1: rider point for private creditors, But do you think private
Speaker 1: creditors might also be worried that by agreeing to agreeing
Speaker 1: to the stand still, they're basically opening up a Pandora's
Speaker 1: box of I don't want to say excuses, but extenuating
Speaker 1: circumstances that countries could use to hit the pause button
Speaker 1: on their payments going forward. Is that a concern? It
Speaker 1: is possibly a concern, But I don't think anyone living
Speaker 1: through the experience that we're all living through believes that
Speaker 1: this is anything other than a truly exceptional worldwide phenomenon.
Speaker 1: None of us, none of us alive today, have ever
Speaker 1: seen anything like it. And so while there's always a
Speaker 1: slippery slope concern in these things, I think the official
Speaker 1: sector and the private sector could minimize that by ensuring
Speaker 1: that every time they speak about the relief that they're
Speaker 1: now providing, they do so in terms that confines it
Speaker 1: two circumstances of this once in a century variety. I mean,
Speaker 1: just to reinforce what at least said. You know, if
Speaker 1: you post some some policy, you always use the slippery
Speaker 1: slope argument, right from legalization of marijuana to whatever right
Speaker 1: you legalize marijuana, and the day after everybody is shooting
Speaker 1: roine or whatever. I mean, you know, the Bank of
Speaker 1: England just announced that this this is the worth recession
Speaker 1: in three hundred years. You know, they postponed the Olympic Games.
Speaker 1: I mean, there have been we observe so many, so
Speaker 1: many exceptions actions that the idea of saying, you know,
Speaker 1: if you do something now, then you know next year
Speaker 1: somebody is coming out with some excuse, or this happened,
Speaker 1: you know in twenty twenty, we're going to do it again.
Speaker 1: It seems a bit a sign if you don't want
Speaker 1: to do something or coming up with some some excuse,
Speaker 1: can I ask you a question? And it's kind of
Speaker 1: falling on mid to his point, and it's a little
Speaker 1: less academic or less theoretical. But for those who have
Speaker 1: not of us, who have never been in these rooms
Speaker 1: where the negotiations take place and these discussions about establishing
Speaker 1: new facilities and debt pauses take place. You mentioned the
Speaker 1: G twenty. But when you talk about the private sector,
Speaker 1: the private owners of government debt, how do you mean
Speaker 1: there's thousands that I don't know how many there are,
Speaker 1: But how did they coordinate and who who talks for them?
Speaker 1: And how do they have a voice in the first place?
Speaker 1: What did those negotiations sound like well, in this case,
Speaker 1: a Washington, D c. Based organization, the Institute for International Finance,
Speaker 1: which has about four hundred and fifty members, most of
Speaker 1: them are financial institutions. They stepped forward on April nine
Speaker 1: and wrote a letter to the official sector actors, in
Speaker 1: effect offering the cooperation of commercial creditors in this stand
Speaker 1: still initiative. So, in this case, they have raised their
Speaker 1: hand and purported to be the mouthpiece for the private
Speaker 1: sector community in this Now, there are many institutions that
Speaker 1: do not belong to the i F and might dispute
Speaker 1: whether they are a legitimate spokesperson. But in this case,
Speaker 1: that's that's how it was done. And the G twenty,
Speaker 1: in its subsequent communicate, and which had announced that bilateral
Speaker 1: creditors were going to provide a suspension of payments for
Speaker 1: the balance of this year, actually identified the i F
Speaker 1: as the coordinator for the commercial creditors. And so you said,
Speaker 1: initially the private commercial creditors that they're willing to participate
Speaker 1: in some sort of program, then have gotten cold feed.
Speaker 1: How do they couch that? Did they? I? Presumably I
Speaker 1: presume they don't just say, now you know what we'd
Speaker 1: like all our money and we want to be paid. First,
Speaker 1: I presume that they have some sort of higher minded,
Speaker 1: theoretical sounding argument, But what is there, as you say,
Speaker 1: it's fallen apart. But how do they how do they
Speaker 1: put their complaints with your program? Well, they sent a
Speaker 1: subsequent letter on me the first which said, we've been
Speaker 1: consulting our members and we feel we should bring to
Speaker 1: the attention of the official sector the many obstacles that
Speaker 1: private sector creditor as will face. First, in their view,
Speaker 1: the initiative must be wholly voluntary. That is, any creditor
Speaker 1: who doesn't want to participate is perfectly free not to participate. Parentheses,
Speaker 1: That is somewhat inconsistent with another principle that they espouse,
Speaker 1: which is inter creditor equity one for all and all
Speaker 1: for one. If everyone can opt out and everyone can
Speaker 1: negotiate different terms, you're not going to have inter creditor equity. Uh. Second,
Speaker 1: they said, in order to do this, individual creditor institutions
Speaker 1: are going to have to calculate the net present value
Speaker 1: cost of this deferment and offset it either by raising
Speaker 1: interest rates or getting official sector guarantees for the deferred amounts.
Speaker 1: In addition, each institution or some atituitions these certainly the
Speaker 1: asset managers will have fiduciary duties. They will have to
Speaker 1: explain to their investors why they are voluntarily agreeing to
Speaker 1: defer receipt of interest payments, and that will be a
Speaker 1: challenge for some of those institutions. So it was a
Speaker 1: long list. It was not a disavowal of their prior commitment.
Speaker 1: It was a preview of the many difficulties that would
Speaker 1: attend this, and they said that these arrangements must be
Speaker 1: negotiated creditor by creditor, maybe instrument by instrument, and that
Speaker 1: process alone could easily eat up the balance of I
Speaker 1: wanted to go back to the issuance point that Mitto
Speaker 1: made private creditors basically arguing, well, why don't emerging markets
Speaker 1: just sell that normally into the market. Somewhat surprisingly, we
Speaker 1: have seen in a bunch of e M bonds sold recently.
Speaker 1: I was just looking at um Sri Lanka's debt and
Speaker 1: that's trading at distress levels. But there are some cell
Speaker 1: side analysts that are issuing by recommendations on Sri Lanka,
Speaker 1: of all things, in the middle of this global crisis.
Speaker 1: How are these countries still able to issue debt and
Speaker 1: what are the buyers thinking? At this point? I am
Speaker 1: completely bit fuddled. Maybe Lee or Ugo can explain this,
Speaker 1: but I have been watching this truly bizarre phenomenon of countries.
Speaker 1: You know, take Guatemala, Paraguay, Mexico, countries that are in
Speaker 1: very deep distress that if you read there prospectuses explained
Speaker 1: to the market. Look, we have no remittances coming in,
Speaker 1: our tourism sector is destroyed. Our primary commodity, say hypothetically
Speaker 1: oil in Mexico is down in the doll drums. We
Speaker 1: have shut our borders, we do not have adequate health
Speaker 1: care facilities, and then they're able to raise billions on
Speaker 1: the markets. I am there fuddled. But I do not
Speaker 1: think that the argument that is being made by some
Speaker 1: that oh, this is a sign that everything is well
Speaker 1: and we do not need to provide relief holds. I
Speaker 1: think that is utterly ludicrous and dangerous for us to
Speaker 1: um use as a projection for what will come. But
Speaker 1: you that argument is being made, especially by some who
Speaker 1: do not want to provide relief. They are much happier
Speaker 1: to sell bonds, to buy those bonds at very high
Speaker 1: interest rates, although I should ex caveat that with the
Speaker 1: interest rates are not nearly as a high as I
Speaker 1: would think them to be. But you know, maybe Lee
Speaker 1: or Hugo has a more sort of rational The markets
Speaker 1: understand everything at price, every risk perspective. But I am
Speaker 1: just completely the funneled well that the countervailing factor, I
Speaker 1: think is the tsunami of quantitative easing that's occurred in
Speaker 1: the last two months. You just have a wall of
Speaker 1: money that centered the market. It must go somewhere. Uh.
Speaker 1: The interest rates on the bonds of developed countries like
Speaker 1: the United States or the Europeans are near zero or
Speaker 1: below zero. So if you're an institutional investor, you must
Speaker 1: find a home for all of this money someplace, and
Speaker 1: that perhaps eclipses you a normal risk aversion in assessing
Speaker 1: some of these investments. I have to say it sounds
Speaker 1: me too. And actually both of the both sides of
Speaker 1: this debate feel very much like the debate around basically
Speaker 1: every asset class in the world right now, including US equities,
Speaker 1: in which you look at the fundamental this makes no sense,
Speaker 1: unemployment expected to shoot. And then the other side of
Speaker 1: that coin is yes, but there is all this extraordinary
Speaker 1: intervention happening one way. It's going to have the resolve, presumably,
Speaker 1: but the debate about how the E M bond world
Speaker 1: continues to trade and raise money feels just like a
Speaker 1: microcosm of literally every other asset class debate we have
Speaker 1: these days. I was going to flag one of my
Speaker 1: favorite countries in good times, which is the Maldives, which
Speaker 1: are very close to my home in Kerala, just a
Speaker 1: forty five minutes flight away. And you know normally that
Speaker 1: that their economics are quite good because they have such
Speaker 1: a booming tourism sector. But they are completely dependent on tourism.
Speaker 1: I think it's close to seventy of their GDP comes
Speaker 1: from tourism or tourism related activities. They have a small
Speaker 1: portion of their economy that comes from sales of fish
Speaker 1: uh and they do not have anything resembling a meaningful
Speaker 1: health sector. Part of the reason I know a lot
Speaker 1: about the Maldives is people from the Maldives workers come
Speaker 1: to India for even the most basic healthcare needs. Now,
Speaker 1: in the current situation, they are down to zero, no tourists,
Speaker 1: fish prices gone down to the bottom, They're having multiple
Speaker 1: COVID nineteen outbreaks, and they can't send their citizens to
Speaker 1: India because the flights are all closed. Now, this is
Speaker 1: not temporary. This country is going to find it incredibly
Speaker 1: hard to recover even in the medium term. So you
Speaker 1: know that the estimates from both the official sector and
Speaker 1: the private markets are much more optimistic in this case
Speaker 1: than I think reality requires. But I wonder whether it
Speaker 1: is a window into what's happening in the rest of
Speaker 1: the world that we are just refusing to face the
Speaker 1: reality of how bad this is. But I am a pessimist,
Speaker 1: so hopefully I am wrong. Um, just on that time
Speaker 1: horizon point. I mean, this theme tends to come up
Speaker 1: over and over again whenever people are talking about debt
Speaker 1: relief or debt stand stills. If you give people a
Speaker 1: grace period now, um, for instance, in the US, like
Speaker 1: for certain things they are granting grace periods, does that
Speaker 1: save up the problem for a later date? And how
Speaker 1: do you manage the exit process? How do you make
Speaker 1: sure that a borrower doesn't end up owing all of
Speaker 1: the money for the past six months that they should
Speaker 1: owe and they have to pay it in one big
Speaker 1: lump sum lump payment. How do you actually manage that?
Speaker 1: And how do you ensure that you're not saving up
Speaker 1: a problem for the for a later date. Tracy is
Speaker 1: concern the G twenty, when they announced the bilateral debt suspension,
Speaker 1: proposed that they deferred interest and in their case, principal
Speaker 1: payments would be due over a four year period with
Speaker 1: one year of grace, so one year in which no
Speaker 1: principle is repaid, and then another three years. That was
Speaker 1: their proposal for how to smooth out this problem. The
Speaker 1: thinking on this is that at the moment it is
Speaker 1: simply not possible for anyone to prepare a debt sustainability
Speaker 1: analysis for any of these countries, that is, in which
Speaker 1: one can repose confidence. Put it that way, there are
Speaker 1: simply too many variables. When does this crisis end? What
Speaker 1: will commodity prices look like when it ends, What will
Speaker 1: export markets look like, What will the tourism industry look like?
Speaker 1: What will the financial markets look like? Those are shrieking
Speaker 1: unknowns at this point in time. Hopefully by the end
Speaker 1: of this year some of those issues will begin to
Speaker 1: be able to be analyzed, and that would allow the
Speaker 1: I m F to begin to assess longer term debt sustainability.
Speaker 1: As I said, a moment ago, we should not expect
Speaker 1: to leave with only four or five countries facing the
Speaker 1: need for a full scale debt restructuring. I think there'll
Speaker 1: be many more. But who's on the list and how
Speaker 1: severe is that debt restructuring at the moment, no one
Speaker 1: I think can predict. So, just on that note, if
Speaker 1: we're looking forward and we think that the world and
Speaker 1: emerging markets especially are going to come out of the
Speaker 1: current crisis owing more money, if we think that we're
Speaker 1: going to get a bunch of restructurings, it's just a
Speaker 1: question of how many and who's first, and who sort
Speaker 1: of needs it most. Is that maybe is that an
Speaker 1: opportunity perhaps to rethink the way emerging markets are funded
Speaker 1: or just sort of hit reset on the way this
Speaker 1: whole system um actually works. I'm trying to end on
Speaker 1: a sort of optimistic note, But do you see an opportunity?
Speaker 1: You stole my question, literally the question I was going
Speaker 1: to ask. No, no, no no, it's perfect, it's great, this
Speaker 1: could be the last that's uh. You You and I
Speaker 1: were in the exact had the exact same thought at
Speaker 1: the same time. So my mouth, my mouth, Yeah, whogo
Speaker 1: is our optimists? Let's lett him in I don't know.
Speaker 1: I mean, I've been pushing for a long time towards
Speaker 1: this idea of using more contingent that instruments, and so
Speaker 1: far they haven't worked. We can tell you of many
Speaker 1: cases in which countries have paid dearly to try to use,
Speaker 1: you know, issue GDP index bonds in the sense that
Speaker 1: they that price when things were going well, without getting
Speaker 1: anything when things were going badly. So if we could
Speaker 1: go in that direction, that would be great. Even though
Speaker 1: I'm the optimistic guy, I'm not very optimistic, but I
Speaker 1: don't know what Lee put that on this well. The
Speaker 1: current effort by some in the official community is to
Speaker 1: try to figure out a way in which we can
Speaker 1: deal with multiple sovereign debt restructurings going on simultaneously. We
Speaker 1: did that in the eighties, but of course the creditor
Speaker 1: universe was a much more hum a genious group of
Speaker 1: commercial banks. Arguably we did it starting in with the
Speaker 1: Brady initiative, and that's what some in the official sector
Speaker 1: are looking at. Is it possible to replicate a template
Speaker 1: for how a sovereign debt restructuring could be done so
Speaker 1: that if we are faced with the situation in which
Speaker 1: there are ten or twenty or thirty countries going through
Speaker 1: the process at the same time. They would not have
Speaker 1: to each individually and in the spoke manner attempt to
Speaker 1: figure out how to implement a dead restructuring that's right
Speaker 1: now the subject of investigation by some of the official sect. Okay, well,
Speaker 1: on that sort of optimistic note, but not necessarily. We're
Speaker 1: going to leave it there, Ugo, mit too, and we
Speaker 1: thank you so much for being on and for that
Speaker 1: fascinating conversation. Thanks very much, good to be with you.
Speaker 1: Thank you, thank you. Yeah, that was great, appreciate it.
Speaker 1: Thank you so, Joe. I found that conversation fascinating, as
Speaker 1: I mentioned, and I know you're fond of saying that
Speaker 1: people don't necessarily need to worry about debt. In fact,
Speaker 1: I can see you tweeting that just a few hours ago.
Speaker 1: But that really only applies, I think to some developed markets, right,
Speaker 1: and e M, you can and probably should worry about
Speaker 1: the debt. Yes, I think there is a very different
Speaker 1: conversation when you think about debt sustainability and the cost
Speaker 1: of borrowing and all these countries in the e M
Speaker 1: versus the developed market context, and what this conversation really
Speaker 1: drives home is that you know, it's so complicated to
Speaker 1: just get in the short term debt relief or sort
Speaker 1: of that, when, as a lead pointed out, when it
Speaker 1: actually gets to the point about looking at sustainability of
Speaker 1: the overall debt stock, it really does decided just going
Speaker 1: to be mind bogglingly difficult challenge for the world in
Speaker 1: the years ahead, even if the virus itself fades. Is
Speaker 1: a problem. Yeah, I mean, the complexity, you're right, is
Speaker 1: what really stands out. You have all these different creditors,
Speaker 1: all these different claims, you have public, private, foreign um
Speaker 1: and domestic creditors. I don't even know how how you
Speaker 1: would begin, but you know, kudos to the three of
Speaker 1: those guys. They're trying to put this together. Yeah. No,
Speaker 1: in terms of the immediate need, like I think there's
Speaker 1: an agreement the immediate need everywhere is cash, right, Like
Speaker 1: it's the cash isn't going to solve the health crisis,
Speaker 1: but cash can keep people solving, keep people paying their bills,
Speaker 1: keep paying doctors and so forth. And so there does
Speaker 1: seem to be this recognition that we don't need to
Speaker 1: make the first part of this too complex. We just
Speaker 1: need to free up cash, and that's even true in
Speaker 1: the U S. Contact. Yeah, and I guess it would
Speaker 1: be interesting to see if um the urgency of this
Speaker 1: particular crisis makes people realize that they do need to
Speaker 1: create some sort of template or sovereign restructurings going forward,
Speaker 1: because that's been I mean, we've had so many episodes
Speaker 1: on sovereign debt restructurings because each one of the tends
Speaker 1: to be unique in its complexity and in its particular issues. Yeah,
Speaker 1: you know what I was thinking about too, like a
Speaker 1: little bit. You know, obviously this was a sovereign debt context,
Speaker 1: but I also think about some of our conversations we've
Speaker 1: had with Chris White of private sector debt, and the
Speaker 1: consistent theme is that when you start talking about the
Speaker 1: asset class of debt, it's just infinitely more complex than
Speaker 1: any other asset classes because of how many different versions are.
Speaker 1: I mean, you think about like there's one Microsoft stock
Speaker 1: right MSFT you want to look at like debt or
Speaker 1: I don't know Microsoft has debt. I know, I'm sure
Speaker 1: they do, but it's get it gets infinitely more complex
Speaker 1: right away, and the number of in the difficulty of
Speaker 1: trading that and coordinating that and so then you think
Speaker 1: about this on an international level, all the different things
Speaker 1: that make public sector that way more complex, and it
Speaker 1: just yeah, it's mind boggling. And that's why there have
Speaker 1: been certain stories, like say Argentina that have been in
Speaker 1: the news for like twenty years, because and that's just
Speaker 1: one one, one country. Yeah, and it's the same story
Speaker 1: pretty much over and over and over all. Right, Um,
Speaker 1: should we leave it there? You know what, I just
Speaker 1: want to say one other things I love I mean,
Speaker 1: I didn't love it, but mid twos comment about you know,
Speaker 1: he's pessimistic, but he'd like to be proven wrong. I
Speaker 1: feel like the amount of times I've said some version
Speaker 1: of that over the last few months, I'd like to
Speaker 1: be shown that I'm wrong. There's a really sort just
Speaker 1: because there's so many sort of bleak ways that this
Speaker 1: could all go extremely bad. Well, I think if you're
Speaker 1: a bear right now and you're going and I hope
Speaker 1: I'm right, that would probably be a not very popular
Speaker 1: position to be taking taste Taste Well. This has been
Speaker 1: another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway, and
Speaker 1: I'm Joe wisn'tal. You could follow me on Twitter at
Speaker 1: The Stalwart, and you should follow our producer on Twitter,
Speaker 1: Laura Carlson at Laura M Carlson. Follow the Bloomberg head
Speaker 1: of podcast, Francesca Levi at Francesca Today, as well as
Speaker 1: all of the Bloomberg podcasts under the handle at podcasts.
Speaker 1: Thanks for listening to