WEBVTT - Three Sovereign Debt Experts Explain How The World Can Instantly Bring Aid To Emerging Markets 0:00:11.119 --> 0:00:14.480 Hello, and welcome to another episode of the Odd Thoughts podcast. 0:00:14.600 --> 0:00:18.960 I'm Tracy Allaway and I'm Joe wisnal So Joe, Uh, 0:00:19.000 --> 0:00:21.279 I think it's fair to say that the world is 0:00:21.320 --> 0:00:29.160 in a pretty bad place right now. I would not disagree. Um, 0:00:29.200 --> 0:00:33.720 we just had jobless claims. Those are still pretty bad. Obviously, 0:00:33.840 --> 0:00:36.600 we have a huge question mark over the U S economy. 0:00:36.840 --> 0:00:41.239 Europe has been doing very poorly as well. But I 0:00:41.280 --> 0:00:43.120 think it's also fair to say that some parts of 0:00:43.120 --> 0:00:48.040 the world are doing worse than others. Yeah, it's really 0:00:48.120 --> 0:00:51.320 interesting because, of course you have to disentangle the sort 0:00:51.320 --> 0:00:57.160 of health crisis specifically from the economic crisis. There are 0:00:57.240 --> 0:01:01.120 parts of the world that may actually be doing better, uh, 0:01:01.280 --> 0:01:04.360 in a surprising sense in terms of the outbreak of 0:01:04.400 --> 0:01:08.959 the public health crisis the virus, but obviously not getting 0:01:09.040 --> 0:01:11.840 spared at all from the fact that so much commerce 0:01:12.080 --> 0:01:17.800 is that a virtual, virtual standstill. So even even places 0:01:17.880 --> 0:01:19.960 that yeah, well the numbers don't seem as bad as 0:01:20.000 --> 0:01:22.920 the UK or the U S from an economic situation, 0:01:23.000 --> 0:01:26.679 they may be even worth potentially. Yeah, but you also 0:01:26.760 --> 0:01:29.440 have some parts of the world where both the health 0:01:29.480 --> 0:01:33.039 crisis and the financial crisis is pretty bad. And I'm 0:01:33.040 --> 0:01:36.760 thinking specifically of emerging markets. So these are countries that 0:01:36.840 --> 0:01:40.040 don't necessarily have a really developed health system, and they 0:01:40.080 --> 0:01:43.600 certainly don't have a lot of money necessarily to suddenly 0:01:43.680 --> 0:01:48.160 direct to containing a pandemic. And now, of course they're 0:01:48.200 --> 0:01:52.160 dealing with an economic crisis that is making the money 0:01:52.200 --> 0:01:55.720 that they have even well reducing the amount of money 0:01:55.760 --> 0:01:58.360 available to them to fight the crisis. So it's really 0:01:58.440 --> 0:02:02.840 like a double whammy at this point. Right, that's exactly right. 0:02:03.200 --> 0:02:06.880 Relatively rich countries or rich countries like the US, for 0:02:07.160 --> 0:02:10.200 as bad as we may be doing on the public 0:02:10.360 --> 0:02:15.440 health side, there's no real financial constraint to spending a 0:02:15.480 --> 0:02:17.760 lot of money, both in terms of helping people pay 0:02:17.800 --> 0:02:20.840 their bills and also building out a public health system. 0:02:20.880 --> 0:02:24.400 It's more of a political capacity constraint. But some countries, 0:02:24.440 --> 0:02:28.480 obviously they simply don't have the fiscal capacity to do 0:02:28.560 --> 0:02:32.240 what's necessary to really fight the health front, even if 0:02:32.240 --> 0:02:37.480 there worthy desire or the political capacity to do so. Right, So, 0:02:37.560 --> 0:02:39.280 as bad as it gets in the U S, don't 0:02:39.280 --> 0:02:42.120 forget that the US government can always issue treasuries. And 0:02:42.560 --> 0:02:46.640 why didn't its deficit for extra fiscal spending, um Sorry 0:02:46.680 --> 0:02:48.680 that sounded flippant, but I don't intend it to be. 0:02:48.760 --> 0:02:52.320 That actually is UH an advantage. Okay, well, so today 0:02:52.440 --> 0:02:55.320 we're gonna be digging into emerging markets. We're going to 0:02:55.400 --> 0:02:58.360 talk about some of those fiscal dynamics, but we're especially 0:02:58.400 --> 0:03:02.320 going to zoom in on this debt question and how 0:03:02.360 --> 0:03:06.359 emerging markets can actually handle the spending that they need 0:03:06.480 --> 0:03:09.600 or raise the money that they need in order to 0:03:09.639 --> 0:03:12.840 fight the coronavirus. Exactly right. So, I mean we've talked 0:03:12.840 --> 0:03:16.160 about this before, we had a discussion on it. We 0:03:16.240 --> 0:03:20.280 talked to brand Setser several weeks ago. That was before 0:03:20.600 --> 0:03:23.359 some of the I think I'm f meetings, but it's 0:03:23.400 --> 0:03:26.720 still I think many people still sense that there is 0:03:26.919 --> 0:03:29.600 much more that needs to be done. And again, because 0:03:29.639 --> 0:03:33.600 of the nature viruses and also economic collapses, I think 0:03:33.639 --> 0:03:37.400 time really is of the essence to move before extreme 0:03:37.520 --> 0:03:42.840 lasting damage takes place. Okay, Well, on that note, let's 0:03:42.880 --> 0:03:45.240 get straight to it. Then. I'm really happy to say 0:03:45.280 --> 0:03:48.680 that we have not one, not two, but three guests 0:03:49.160 --> 0:03:52.440 on today's episode. Two of them have been with odd 0:03:52.480 --> 0:03:55.800 thoughts before one is brand new. I'm going to introduce 0:03:55.840 --> 0:03:59.080 them all. Uh Midto Glate is a professor of law 0:03:59.120 --> 0:04:01.520 at Duke Universe City and of course one of the 0:04:01.560 --> 0:04:06.160 world's foremost experts on sovereign debt restructurings. Lee book High 0:04:06.400 --> 0:04:10.160 is the legendary sovereign debt lawyer, now retired from Cleary 0:04:10.200 --> 0:04:15.080 Gottlie but an honorary professor at the University of Edinburgh, 0:04:15.440 --> 0:04:19.880 and Ugo Panizza is Professor of International Economics at the 0:04:19.920 --> 0:04:24.160 Graduate Institute in Geneva. All three of them and X 0:04:24.360 --> 0:04:27.440 are experts in their fields and they've come up with 0:04:27.480 --> 0:04:30.480 a proposal for how emerging markets might be able to 0:04:30.720 --> 0:04:33.840 weather this crisis. So thank you all for coming on. 0:04:34.080 --> 0:04:37.920 Thank you, thank you, thank you. Why don't we uh 0:04:38.279 --> 0:04:41.760 set out the scene. I guess how much trouble are 0:04:41.880 --> 0:04:47.800 emerging markets actually in at the moment? Very big trouble, 0:04:49.520 --> 0:04:52.560 if that's the question. If you one, they can give 0:04:52.600 --> 0:04:56.280 you a couple of numbers. So we run some estimates 0:04:56.440 --> 0:05:00.200 and according to our estimates, emerging markets need to um 0:05:00.720 --> 0:05:05.600 service that in the next twelve months for nearly nine 0:05:06.160 --> 0:05:10.920 million dollars. We so this is the public sector and 0:05:10.960 --> 0:05:13.760 this is the external that of the public sector of 0:05:13.760 --> 0:05:16.640 this emerging market country. So this is UH, this is 0:05:16.680 --> 0:05:20.280 a large amount of money, and there was a not 0:05:20.440 --> 0:05:24.400 paid by the Prime Minister of Ethiopia in the in 0:05:24.440 --> 0:05:28.320 the New York Times last week, we basically said that 0:05:28.480 --> 0:05:31.720 some in Ethiopia and some other discontents, they need to 0:05:31.720 --> 0:05:35.720 face the choice whether to services that or you know, 0:05:35.920 --> 0:05:39.480 spent for health care of the their own citizens. So 0:05:39.520 --> 0:05:45.240 that's a difficult choice mhm. So already there are countries 0:05:46.200 --> 0:05:49.400 that have been forced just in these in the short 0:05:49.720 --> 0:05:51.360 you know, it's really just been a couple of months. 0:05:51.680 --> 0:05:55.599 Already we're seeing companies forced or started, countries forced to 0:05:56.279 --> 0:05:59.520 make one priority over the other, either stay good on 0:05:59.680 --> 0:06:04.680 their external public debt or do the necessary spending to 0:06:04.880 --> 0:06:07.680 keep the virus in check. Yes, there there have been 0:06:08.520 --> 0:06:13.760 a hundred countries that have asked the IMF for emergency 0:06:13.839 --> 0:06:17.640 financial assistance. That's more than half the membership of the IMF. 0:06:18.600 --> 0:06:23.520 But that money will not be enough and in for 0:06:23.680 --> 0:06:28.200 some countries not nearly enough to defray the extra expenses 0:06:28.279 --> 0:06:31.560 that are coming with this health crisis. Therefore, they're faced 0:06:31.600 --> 0:06:35.360 with its choice of having to divert funds that had 0:06:35.400 --> 0:06:40.120 been earmarked for other governmental purposes, including debt service, to 0:06:40.400 --> 0:06:47.839 divert those funds towards the expenses of dealing with this pandemic. 0:06:48.640 --> 0:06:51.039 If I can just add one number. So the the 0:06:51.120 --> 0:06:54.440 I m F forecast growth for all of one ninety 0:06:54.480 --> 0:06:58.560 member countries, and at the peak of the global financial crisis, 0:06:58.640 --> 0:07:03.359 it forecasted growth positive growth for seventy seven countries. This 0:07:03.520 --> 0:07:07.240 year is forecasting positive growth for nine countries. This is 0:07:07.279 --> 0:07:11.000 really and even for these nine plants, they are forecasting 0:07:11.560 --> 0:07:17.320 very low positive growth, which nobody about supercent I'm actually 0:07:17.360 --> 0:07:22.640 surprised at nine countries forecast for positive growth. Okay, Lee, 0:07:22.840 --> 0:07:25.520 you mentioned the number of countries that have approached the 0:07:25.520 --> 0:07:29.360 I m F for help. We've also had an agreement 0:07:30.360 --> 0:07:33.800 from the G twenty for a temporary debt stand still 0:07:34.040 --> 0:07:36.040 I want to bring in mid to maybe you could 0:07:36.040 --> 0:07:39.600 talk about that and what's involved in that stand still. 0:07:40.400 --> 0:07:44.640 You know, there have been some efforts to think about 0:07:44.760 --> 0:07:50.320 the global implications of the current crisis, and one of 0:07:50.360 --> 0:07:56.840 the efforts that seemed very positive started with and I 0:07:57.040 --> 0:08:02.440 MF World Bank Call for Action and was then followed 0:08:02.440 --> 0:08:06.960 by the G twenty, you know, announcing that there would 0:08:07.000 --> 0:08:10.960 be a debt moratorium for the rest of the year 0:08:13.360 --> 0:08:17.480 on debts on payments that are owed to the bilaterals, 0:08:18.400 --> 0:08:23.080 and importantly in that there was a request that the 0:08:23.200 --> 0:08:29.040 private creditor sector also provide similar relief, and there had 0:08:29.080 --> 0:08:33.439 been indications that they were willing. The Institute of International 0:08:33.480 --> 0:08:36.680 Finance sort of a lobbying group for the private creditors, 0:08:37.160 --> 0:08:40.800 had agreed that yes, we should provide relief to the 0:08:40.880 --> 0:08:45.600 poorest countries in the world altogether, all on comparable terms, 0:08:46.520 --> 0:08:51.719 and this seemed like a very positive sign that at 0:08:51.800 --> 0:08:56.280 least we were beginning to think about this providing relief 0:08:56.600 --> 0:09:03.640 very quickly. Unfortunately, as of today, this seems like it is, 0:09:04.600 --> 0:09:09.760 in my skeptical viewpoint, all completely falling apart. All of 0:09:09.840 --> 0:09:14.520 those enthusiastic statements about providing relief for the rest of 0:09:14.559 --> 0:09:18.600 the year UH seem to be going nowhere. I think 0:09:18.600 --> 0:09:21.440 the official sector will provide the relief. I think the 0:09:21.480 --> 0:09:25.800 private sector is basically trying to delay and not provide 0:09:25.960 --> 0:09:29.840 any relief whatsoever. I'm sure I hope that they call 0:09:29.920 --> 0:09:32.480 in and yell at us and say that no, they 0:09:32.520 --> 0:09:35.360 actually want to provide relief, but I don't see it 0:09:35.440 --> 0:09:39.559 going anywhere. Well, Lee, I'm thinking about you know, Tracy, 0:09:39.640 --> 0:09:42.960 and I talked with you um several months ago at 0:09:42.960 --> 0:09:47.040 one of our live events and these sort of these 0:09:47.240 --> 0:09:51.840 debt renegotiations. Even in the simplest terms, if it's just 0:09:51.960 --> 0:09:56.120 one country trying to renegotiate some of its debt, they 0:09:56.160 --> 0:10:00.319 seem to you know, these renegotiations can go on for years, 0:10:00.320 --> 0:10:03.320 with different classes of creditors who own different types of 0:10:03.360 --> 0:10:07.640 bonds um all trying to get their share. I can 0:10:07.679 --> 0:10:12.360 only imagine that it's orders of magnitude more complex when 0:10:12.360 --> 0:10:16.880 it trying to basically do a solution for every country 0:10:16.880 --> 0:10:19.800 in the world at the same time. Well, the way 0:10:19.840 --> 0:10:22.960 we've been thinking about it is that we have an 0:10:22.960 --> 0:10:27.120 immediate emergency, and that is the need to get funding 0:10:27.120 --> 0:10:29.360 into the hands of these countries to deal with the 0:10:29.400 --> 0:10:34.840 pandemic entering. They were a handful of countries who had 0:10:34.880 --> 0:10:43.559 already acknowledged that they needed a full scale debt restructuring Argentina, Lebanon, Ecuador, Venezuela. Obviously, 0:10:44.800 --> 0:10:49.120 we will leave with a much longer list of countries 0:10:49.160 --> 0:10:52.199 that need a full scale debt restructuring, but that's not 0:10:52.280 --> 0:10:56.720 the focus right now. The immediate focus in the and 0:10:56.720 --> 0:11:00.280 and the paper that my colleagues and I produced was 0:11:00.679 --> 0:11:10.200 intended to find a way quickly and uniformly two free 0:11:10.280 --> 0:11:15.680 up liberate cash that these countries could use for COVID 0:11:15.800 --> 0:11:22.520 nineteen amelioration. This program that me too has described involving 0:11:22.559 --> 0:11:26.480 the official sector and we hoped the private sector, was 0:11:26.559 --> 0:11:32.520 all intended to focus on that. Everyone knows that within 0:11:32.600 --> 0:11:36.160 a relatively short space of time we will have to 0:11:36.200 --> 0:11:39.880 confront the broader issue that you've just mentioned. How does 0:11:39.960 --> 0:11:45.240 one deal with full scale debt restructurings, because many countries 0:11:45.559 --> 0:11:51.680 will exit the COVID period with unsustainable debt stocks. That 0:11:51.760 --> 0:11:55.079 will be a challenge, frankly, that we have not faced 0:11:55.280 --> 0:11:59.600 since the and the Latin American debt crisis and the 0:11:59.640 --> 0:12:03.640 world it was very different back then. Mh. I want 0:12:03.679 --> 0:12:06.079 to get to that point, but before we do, perhaps 0:12:06.080 --> 0:12:08.520 one of you could just walk us through what your 0:12:08.559 --> 0:12:12.440 proposal actually entails. As you mentioned, you know, maybe it's 0:12:12.440 --> 0:12:15.440 not that difficult to have a debt stand still for 0:12:16.000 --> 0:12:20.920 bilateral sovereign creditors. Not that difficult. Maybe maybe that's sort 0:12:20.960 --> 0:12:23.720 of overegging it. But there is a sticking point in 0:12:23.760 --> 0:12:27.200 the form of the private creditors. So what's your solution here? 0:12:28.080 --> 0:12:30.680 Why don't why don't I walk you through it? It's 0:12:30.720 --> 0:12:35.520 it's really quite straightforward. We propose that the dead are 0:12:35.640 --> 0:12:39.160 countries that need this relief, and not all of them will. 0:12:40.000 --> 0:12:43.640 Some of them will not be afflicted by the epidemic 0:12:43.679 --> 0:12:48.200 as badly as others, and some may continue to have 0:12:48.480 --> 0:12:53.480 or at least have hopes of having market access. But 0:12:53.760 --> 0:12:57.320 for the rest, we propose that they open what we 0:12:57.440 --> 0:13:03.040 call a central credit Facility CCF with a multilateral development 0:13:03.040 --> 0:13:05.520 bank that could be the World Bank, but it could 0:13:05.520 --> 0:13:08.760 be one of the regional development banks African Development Bank, 0:13:08.880 --> 0:13:13.000 Asian Development Back, and so forth. The country would then 0:13:13.360 --> 0:13:20.040 divert the payments that would normally have gone towards interest 0:13:20.040 --> 0:13:23.760 payments on external debt. It would divert those payments into 0:13:24.160 --> 0:13:30.800 the central credit facility. As the amounts arrive at the CCF, 0:13:31.480 --> 0:13:36.240 the administrator the multilateral Development bank would credit the relevant 0:13:36.480 --> 0:13:41.640 creditor with a participation interest in the CCF, just like 0:13:41.800 --> 0:13:47.080 a syndicated loan. The country could then borrow from the 0:13:47.160 --> 0:13:53.760 CCF to deal with COVID nineteen related expenses. This is 0:13:53.800 --> 0:13:59.360 a critical feature because the multilateral Development Bank would be 0:13:59.400 --> 0:14:04.240 responsible for monitoring the use of that money. No individual 0:14:04.400 --> 0:14:08.000 commercial creditor or even group of commercial creditors is going 0:14:08.040 --> 0:14:11.000 to be in a position to undertake that monitoring task. 0:14:11.440 --> 0:14:16.040 And the last thing anyone wants is money that has 0:14:16.200 --> 0:14:21.520 been effectively contributed by creditors to deal with this pandemic 0:14:22.280 --> 0:14:26.280 being siphoned away for other purposes. Put it that way, 0:14:26.320 --> 0:14:29.840 so the multi ladder of Development Bank would be responsible 0:14:29.920 --> 0:14:34.160 for that. The We don't specify what the financial terms 0:14:34.680 --> 0:14:38.840 of the CCF should be, but common sense is that 0:14:38.920 --> 0:14:43.479 they should be. That the repayment terms for the CCFP 0:14:43.600 --> 0:14:48.240 should not put further burden on the post COVID financial 0:14:48.280 --> 0:14:52.880 position of these countries. In a nutshell, that's the nut 0:14:54.120 --> 0:14:56.240 Do any of you have an estimate for how much 0:14:56.280 --> 0:15:00.320 money that could actually free up? Its kind of ends 0:15:00.440 --> 0:15:06.280 on whether the bilateral creditors are also going to participate 0:15:06.480 --> 0:15:09.000 in this bugle would have a better idea. I think 0:15:09.000 --> 0:15:14.680 of the numbers, the number is the maximum number. It's 0:15:14.760 --> 0:15:18.440 what I gave you before. If you only focus on payment, 0:15:18.520 --> 0:15:21.160 you on long term death. The maximum number is what 0:15:21.200 --> 0:15:22.840 I gave you before. That of course I gave it 0:15:22.880 --> 0:15:25.520 to you wrong, because I always get confused between millions 0:15:25.560 --> 0:15:31.840 and billions. I gave you a number of about nine millions, 0:15:32.040 --> 0:15:37.320 actually nine hundred billions. That's well that's the maximum amount 0:15:37.480 --> 0:15:41.480 which is owed by all emerging and developing countries. Clearly, 0:15:41.560 --> 0:15:45.600 as Lee said, not all countries would need this type 0:15:45.600 --> 0:15:47.800 of help, So is this sort of an upper bound 0:15:48.600 --> 0:15:52.520 UH and and the amount varies from from the country 0:15:52.560 --> 0:15:56.120 to country. But that's sort of let's say, the the 0:15:56.200 --> 0:16:11.920 end alope, the maximum memberlope. So we haven't, as Lead 0:16:11.960 --> 0:16:15.480 pointed out, where just this first stage which we need 0:16:15.640 --> 0:16:21.640 immediate cash for these countries to fight the health crisis. Obviously, 0:16:22.480 --> 0:16:24.680 the question of where they will be in terms of 0:16:24.720 --> 0:16:28.440 dead stock sustainability, that's probably a question for next year, 0:16:28.440 --> 0:16:31.440 and that's gonna be infinitely more complex. But in terms 0:16:31.480 --> 0:16:35.680 of implementing the plan put forth by the three of 0:16:35.760 --> 0:16:38.840 you to free up this cash through UH sort of 0:16:38.880 --> 0:16:43.440 international development a bank or multiple banks, who are the 0:16:43.480 --> 0:16:47.360 actors that need to make this happen, just to coordinate 0:16:47.480 --> 0:16:50.160 this first step and why is it proving to be 0:16:50.520 --> 0:16:55.680 so challenging to coordinate them? Initially it seemed like everybody 0:16:55.800 --> 0:17:01.240 was going to cooperate, the key actors in coordinate such 0:17:01.280 --> 0:17:05.400 an effort because we do not have anything like an 0:17:05.400 --> 0:17:10.439 international sovereign bankruptcy scheme. UH. This all has to be 0:17:10.520 --> 0:17:16.320 done in a cooperative fashion. And as the historical matter, 0:17:16.800 --> 0:17:20.879 the key actors have always been the I m F 0:17:21.440 --> 0:17:25.199 and the multilaterals. Here, the I m F and the 0:17:25.200 --> 0:17:30.440 World Bank, through their leadership, took early action. I think 0:17:30.480 --> 0:17:34.560 marchy was when they put out their call to action 0:17:35.119 --> 0:17:40.440 and the private creditor group initially seemed to support this, 0:17:42.320 --> 0:17:46.200 which then resulted in the G twenty taking concrete actions. 0:17:46.200 --> 0:17:51.000 So end of March early April, it looked like we 0:17:51.000 --> 0:17:53.560 were going to be able to provide on a global 0:17:53.640 --> 0:18:00.639 scale relief to basically half the world for the rest 0:18:00.640 --> 0:18:06.199 of massive relief as Google put the numbers in, and 0:18:06.359 --> 0:18:12.879 then as the question of implementation, so our team was thinking, 0:18:13.200 --> 0:18:16.240 you know, everybody's cooperating, this is just a matter of 0:18:16.320 --> 0:18:21.120 figuring out how do we enable the cooperation. And as 0:18:21.200 --> 0:18:24.600 we were working on the enabling the co operation, the 0:18:24.800 --> 0:18:30.879 willingness to cooperate gradually diminished. Now there are many motivations 0:18:30.920 --> 0:18:33.800 one can ascribe to this, or maybe this is just 0:18:33.880 --> 0:18:37.720 the natural process, but uh, you know, as the G 0:18:37.880 --> 0:18:41.159 twenty said we will provide official sector relief to the 0:18:41.200 --> 0:18:49.879 poorest countries, then the free rider tendencies blossomed, and I 0:18:50.000 --> 0:18:54.479 suspect that at least some in the private creditor world said, oh, well, 0:18:54.520 --> 0:18:58.560 if the official sector will provide all this relief, maybe 0:18:58.560 --> 0:19:01.640 we don't need to provide relief. Maybe we need to explain, 0:19:02.119 --> 0:19:04.080 you know, we didn't really mean we were going to 0:19:04.200 --> 0:19:10.600 provide relief. We want, you know, proper compensation. Oh. You know, 0:19:10.720 --> 0:19:14.560 many of these countries actually can borrow it. Market rates 0:19:14.560 --> 0:19:17.320 are about market rates, and maybe we should just let 0:19:17.359 --> 0:19:22.640 them borrow. And maybe we have fiduciary obligations, even though 0:19:22.880 --> 0:19:25.240 many of the people have spoken to don't even understand 0:19:25.240 --> 0:19:30.240 what fiduciary obligations are. Uh. So it is looking like 0:19:31.160 --> 0:19:34.520 the official sector will have to provide the temporary relief. 0:19:34.520 --> 0:19:39.040 It won't be enough private Uh. Many countries who have 0:19:39.240 --> 0:19:43.160 access will continue to borrow, even though I think they 0:19:43.200 --> 0:19:46.320 should not borrow as this stage. If you read their 0:19:46.400 --> 0:19:50.840 risk disclosures, you would think they should not borrow. And 0:19:50.880 --> 0:19:56.040 then the debt restructuring when it comes, will come earlier 0:19:56.080 --> 0:20:00.920 than it should and will be brutal. I do want 0:20:00.920 --> 0:20:03.200 to talk about the issuance that we are seeing from 0:20:03.240 --> 0:20:07.800 emerging markets, but before we do, I understand the free 0:20:07.920 --> 0:20:12.000 rider point for private creditors, But do you think private 0:20:12.040 --> 0:20:16.240 creditors might also be worried that by agreeing to agreeing 0:20:16.280 --> 0:20:20.320 to the stand still, they're basically opening up a Pandora's 0:20:20.400 --> 0:20:24.359 box of I don't want to say excuses, but extenuating 0:20:24.400 --> 0:20:28.760 circumstances that countries could use to hit the pause button 0:20:28.840 --> 0:20:33.960 on their payments going forward. Is that a concern? It 0:20:34.160 --> 0:20:39.359 is possibly a concern, But I don't think anyone living 0:20:39.400 --> 0:20:43.119 through the experience that we're all living through believes that 0:20:43.200 --> 0:20:48.680 this is anything other than a truly exceptional worldwide phenomenon. 0:20:51.000 --> 0:20:55.200 None of us, none of us alive today, have ever 0:20:55.240 --> 0:21:01.040 seen anything like it. And so while there's always a 0:21:01.280 --> 0:21:06.760 slippery slope concern in these things, I think the official 0:21:06.840 --> 0:21:11.600 sector and the private sector could minimize that by ensuring 0:21:11.680 --> 0:21:16.000 that every time they speak about the relief that they're 0:21:16.040 --> 0:21:20.240 now providing, they do so in terms that confines it 0:21:21.359 --> 0:21:28.680 two circumstances of this once in a century variety. I mean, 0:21:28.920 --> 0:21:32.359 just to reinforce what at least said. You know, if 0:21:32.400 --> 0:21:36.360 you post some some policy, you always use the slippery 0:21:36.400 --> 0:21:40.440 slope argument, right from legalization of marijuana to whatever right 0:21:41.160 --> 0:21:44.600 you legalize marijuana, and the day after everybody is shooting 0:21:44.760 --> 0:21:48.320 roine or whatever. I mean, you know, the Bank of 0:21:48.400 --> 0:21:51.280 England just announced that this this is the worth recession 0:21:51.320 --> 0:21:54.879 in three hundred years. You know, they postponed the Olympic Games. 0:21:55.119 --> 0:21:58.879 I mean, there have been we observe so many, so 0:21:58.960 --> 0:22:02.800 many exceptions actions that the idea of saying, you know, 0:22:02.800 --> 0:22:05.680 if you do something now, then you know next year 0:22:05.800 --> 0:22:08.800 somebody is coming out with some excuse, or this happened, 0:22:09.200 --> 0:22:11.359 you know in twenty twenty, we're going to do it again. 0:22:11.440 --> 0:22:13.959 It seems a bit a sign if you don't want 0:22:14.000 --> 0:22:16.440 to do something or coming up with some some excuse, 0:22:16.840 --> 0:22:19.119 can I ask you a question? And it's kind of 0:22:19.400 --> 0:22:22.000 falling on mid to his point, and it's a little 0:22:22.119 --> 0:22:25.480 less academic or less theoretical. But for those who have 0:22:25.560 --> 0:22:28.240 not of us, who have never been in these rooms 0:22:28.280 --> 0:22:32.720 where the negotiations take place and these discussions about establishing 0:22:32.720 --> 0:22:36.800 new facilities and debt pauses take place. You mentioned the 0:22:36.880 --> 0:22:40.640 G twenty. But when you talk about the private sector, 0:22:41.040 --> 0:22:44.680 the private owners of government debt, how do you mean 0:22:44.720 --> 0:22:46.680 there's thousands that I don't know how many there are, 0:22:46.720 --> 0:22:50.600 But how did they coordinate and who who talks for them? 0:22:50.640 --> 0:22:53.160 And how do they have a voice in the first place? 0:22:53.160 --> 0:22:58.119 What did those negotiations sound like well, in this case, 0:22:58.880 --> 0:23:04.160 a Washington, D c. Based organization, the Institute for International Finance, 0:23:04.240 --> 0:23:06.919 which has about four hundred and fifty members, most of 0:23:06.920 --> 0:23:14.000 them are financial institutions. They stepped forward on April nine 0:23:14.080 --> 0:23:18.040 and wrote a letter to the official sector actors, in 0:23:18.119 --> 0:23:27.919 effect offering the cooperation of commercial creditors in this stand 0:23:28.000 --> 0:23:34.000 still initiative. So, in this case, they have raised their 0:23:34.040 --> 0:23:39.520 hand and purported to be the mouthpiece for the private 0:23:39.800 --> 0:23:43.840 sector community in this Now, there are many institutions that 0:23:43.880 --> 0:23:46.760 do not belong to the i F and might dispute 0:23:46.800 --> 0:23:51.040 whether they are a legitimate spokesperson. But in this case, 0:23:51.119 --> 0:23:54.959 that's that's how it was done. And the G twenty, 0:23:55.119 --> 0:24:01.000 in its subsequent communicate, and which had announced that bilateral 0:24:01.080 --> 0:24:05.679 creditors were going to provide a suspension of payments for 0:24:05.720 --> 0:24:09.199 the balance of this year, actually identified the i F 0:24:09.720 --> 0:24:15.440 as the coordinator for the commercial creditors. And so you said, 0:24:15.480 --> 0:24:19.639 initially the private commercial creditors that they're willing to participate 0:24:19.680 --> 0:24:22.520 in some sort of program, then have gotten cold feed. 0:24:23.200 --> 0:24:27.040 How do they couch that? Did they? I? Presumably I 0:24:27.119 --> 0:24:29.720 presume they don't just say, now you know what we'd 0:24:29.720 --> 0:24:31.920 like all our money and we want to be paid. First, 0:24:31.920 --> 0:24:34.280 I presume that they have some sort of higher minded, 0:24:34.320 --> 0:24:38.000 theoretical sounding argument, But what is there, as you say, 0:24:38.040 --> 0:24:39.760 it's fallen apart. But how do they how do they 0:24:39.800 --> 0:24:44.639 put their complaints with your program? Well, they sent a 0:24:44.880 --> 0:24:49.000 subsequent letter on me the first which said, we've been 0:24:49.040 --> 0:24:54.320 consulting our members and we feel we should bring to 0:24:54.400 --> 0:24:58.440 the attention of the official sector the many obstacles that 0:24:58.760 --> 0:25:03.760 private sector creditor as will face. First, in their view, 0:25:04.280 --> 0:25:08.800 the initiative must be wholly voluntary. That is, any creditor 0:25:08.840 --> 0:25:14.399 who doesn't want to participate is perfectly free not to participate. Parentheses, 0:25:14.600 --> 0:25:18.680 That is somewhat inconsistent with another principle that they espouse, 0:25:18.800 --> 0:25:22.760 which is inter creditor equity one for all and all 0:25:22.800 --> 0:25:27.440 for one. If everyone can opt out and everyone can 0:25:27.640 --> 0:25:34.200 negotiate different terms, you're not going to have inter creditor equity. Uh. Second, 0:25:34.320 --> 0:25:39.880 they said, in order to do this, individual creditor institutions 0:25:39.920 --> 0:25:44.760 are going to have to calculate the net present value 0:25:44.840 --> 0:25:49.160 cost of this deferment and offset it either by raising 0:25:49.400 --> 0:25:55.920 interest rates or getting official sector guarantees for the deferred amounts. 0:25:56.280 --> 0:26:01.520 In addition, each institution or some atituitions these certainly the 0:26:01.520 --> 0:26:05.080 asset managers will have fiduciary duties. They will have to 0:26:05.160 --> 0:26:08.879 explain to their investors why they are voluntarily agreeing to 0:26:09.000 --> 0:26:13.679 defer receipt of interest payments, and that will be a 0:26:13.760 --> 0:26:18.200 challenge for some of those institutions. So it was a 0:26:18.240 --> 0:26:23.600 long list. It was not a disavowal of their prior commitment. 0:26:23.760 --> 0:26:29.120 It was a preview of the many difficulties that would 0:26:29.119 --> 0:26:35.040 attend this, and they said that these arrangements must be 0:26:35.160 --> 0:26:40.920 negotiated creditor by creditor, maybe instrument by instrument, and that 0:26:41.000 --> 0:26:46.520 process alone could easily eat up the balance of I 0:26:46.560 --> 0:26:49.560 wanted to go back to the issuance point that Mitto 0:26:50.119 --> 0:26:54.200 made private creditors basically arguing, well, why don't emerging markets 0:26:54.320 --> 0:26:59.160 just sell that normally into the market. Somewhat surprisingly, we 0:26:59.280 --> 0:27:02.640 have seen in a bunch of e M bonds sold recently. 0:27:02.760 --> 0:27:05.919 I was just looking at um Sri Lanka's debt and 0:27:05.960 --> 0:27:08.720 that's trading at distress levels. But there are some cell 0:27:08.800 --> 0:27:12.200 side analysts that are issuing by recommendations on Sri Lanka, 0:27:12.240 --> 0:27:14.560 of all things, in the middle of this global crisis. 0:27:15.240 --> 0:27:18.919 How are these countries still able to issue debt and 0:27:19.240 --> 0:27:22.680 what are the buyers thinking? At this point? I am 0:27:22.880 --> 0:27:28.560 completely bit fuddled. Maybe Lee or Ugo can explain this, 0:27:28.720 --> 0:27:36.400 but I have been watching this truly bizarre phenomenon of countries. 0:27:37.359 --> 0:27:42.760 You know, take Guatemala, Paraguay, Mexico, countries that are in 0:27:43.080 --> 0:27:50.080 very deep distress that if you read there prospectuses explained 0:27:50.200 --> 0:27:54.240 to the market. Look, we have no remittances coming in, 0:27:54.680 --> 0:28:01.000 our tourism sector is destroyed. Our primary commodity, say hypothetically 0:28:01.400 --> 0:28:06.480 oil in Mexico is down in the doll drums. We 0:28:06.560 --> 0:28:11.480 have shut our borders, we do not have adequate health 0:28:11.520 --> 0:28:17.119 care facilities, and then they're able to raise billions on 0:28:17.200 --> 0:28:20.760 the markets. I am there fuddled. But I do not 0:28:21.240 --> 0:28:25.040 think that the argument that is being made by some 0:28:25.680 --> 0:28:29.240 that oh, this is a sign that everything is well 0:28:29.280 --> 0:28:32.320 and we do not need to provide relief holds. I 0:28:32.359 --> 0:28:36.840 think that is utterly ludicrous and dangerous for us to 0:28:38.080 --> 0:28:42.480 um use as a projection for what will come. But 0:28:43.000 --> 0:28:49.320 you that argument is being made, especially by some who 0:28:49.400 --> 0:28:53.240 do not want to provide relief. They are much happier 0:28:54.080 --> 0:28:57.920 to sell bonds, to buy those bonds at very high 0:28:58.000 --> 0:29:02.239 interest rates, although I should ex caveat that with the 0:29:02.360 --> 0:29:06.160 interest rates are not nearly as a high as I 0:29:06.200 --> 0:29:08.800 would think them to be. But you know, maybe Lee 0:29:08.920 --> 0:29:13.320