1 00:00:10,920 --> 00:00:14,200 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:14,280 --> 00:00:18,639 Speaker 1: I'm Tracy Allaway and I'm Joe Wisnthal. Joe. We like 3 00:00:18,760 --> 00:00:23,720 Speaker 1: to talk about debt, don't we? We do? Remember we did? Uh? 4 00:00:24,120 --> 00:00:27,920 Speaker 1: Last fall? We had our Odd Lodge live performance I 5 00:00:27,920 --> 00:00:30,760 Speaker 1: Guess or Live episode, and we had a whole section 6 00:00:31,200 --> 00:00:35,320 Speaker 1: all about the nature of debt, sovereign debt, sovereign debt, restructuring, 7 00:00:35,560 --> 00:00:39,080 Speaker 1: things like that. Definitely one of our one of our 8 00:00:39,159 --> 00:00:43,880 Speaker 1: go to topics. Yes, And one of the reasons why 9 00:00:43,960 --> 00:00:46,480 Speaker 1: I find debt quite fascinating and you sort of touched 10 00:00:46,479 --> 00:00:50,720 Speaker 1: on it just there, is because there's almost like a 11 00:00:51,000 --> 00:00:55,880 Speaker 1: moral veneer on debt, Like the issue of who owes 12 00:00:56,080 --> 00:01:01,080 Speaker 1: what and to whom is almost a moral one. I've 13 00:01:01,160 --> 00:01:03,639 Speaker 1: totally noticed this, and I totally agree. I mean, there 14 00:01:03,720 --> 00:01:06,440 Speaker 1: was a story that I tweeted out from Bloomberg a 15 00:01:06,480 --> 00:01:09,839 Speaker 1: couple of weeks ago about how, um, you know stub Hub. 16 00:01:09,840 --> 00:01:12,720 Speaker 1: It's where you can buy tickets for like concerts kinds 17 00:01:12,760 --> 00:01:15,120 Speaker 1: of stuff, and they had this thing on there they're 18 00:01:15,160 --> 00:01:17,440 Speaker 1: like partnering with some companies so that if tickets were 19 00:01:17,480 --> 00:01:20,280 Speaker 1: too expensive for you, you could borrow money to buy 20 00:01:20,319 --> 00:01:24,000 Speaker 1: them and people just have such a visceral reaction. They're like, Oh, 21 00:01:24,040 --> 00:01:27,240 Speaker 1: this is terrible, this is outrageous, and like, I guess 22 00:01:27,400 --> 00:01:30,960 Speaker 1: kind of, but it's so interesting. Like nothing makes people 23 00:01:31,000 --> 00:01:35,120 Speaker 1: more upset in the financial sphere than the perception that 24 00:01:35,240 --> 00:01:40,160 Speaker 1: someone is taking out debt in an unsustainable or way 25 00:01:40,400 --> 00:01:43,120 Speaker 1: or for a reason that doesn't make total sense, like 26 00:01:43,160 --> 00:01:45,119 Speaker 1: maybe like buying a house or something. They just get 27 00:01:45,120 --> 00:01:47,920 Speaker 1: People have such strong views on debt totally. It's a 28 00:01:47,920 --> 00:01:50,040 Speaker 1: hot button topic, and this is one of the reasons 29 00:01:50,040 --> 00:01:54,280 Speaker 1: why debt restructurings are so fascinating, because it's just one 30 00:01:54,360 --> 00:01:57,960 Speaker 1: giant argument over how to work out the debt and 31 00:01:58,040 --> 00:02:01,600 Speaker 1: whether the country that assumed all that debt deserves to 32 00:02:02,000 --> 00:02:04,280 Speaker 1: get away with it, as a lot of people think. 33 00:02:04,600 --> 00:02:08,480 Speaker 1: But there is one particular notion of debt that is 34 00:02:08,560 --> 00:02:13,000 Speaker 1: even more interesting from a moral perspective than all others. 35 00:02:13,040 --> 00:02:16,120 Speaker 1: Do you know what it is? Uh, tell me what 36 00:02:16,120 --> 00:02:20,799 Speaker 1: it is? Odious debt? Ah, So this is, well, what 37 00:02:21,320 --> 00:02:23,720 Speaker 1: defined odious debt? Because I've seen this for a long time, 38 00:02:23,720 --> 00:02:27,200 Speaker 1: but I'm not sure if I actually know the proper definition. Okay, well, 39 00:02:27,240 --> 00:02:30,560 Speaker 1: it's something that has been mentioned on our podcast. I 40 00:02:30,560 --> 00:02:33,160 Speaker 1: think a couple of times before now, but we've never 41 00:02:33,200 --> 00:02:36,000 Speaker 1: really gone into it in detail. But the first thing 42 00:02:36,040 --> 00:02:38,600 Speaker 1: to know about odious debt is it's a concept that 43 00:02:38,639 --> 00:02:42,399 Speaker 1: really only exists in the minds of lawyers and academics. 44 00:02:42,440 --> 00:02:45,960 Speaker 1: It doesn't really exist in the real world. But what 45 00:02:46,120 --> 00:02:49,440 Speaker 1: it is as a concept is the notion that if 46 00:02:49,600 --> 00:02:54,359 Speaker 1: a government issued a bunch of debt, and the government 47 00:02:55,280 --> 00:02:58,040 Speaker 1: did that without the consent of the people, and did 48 00:02:58,080 --> 00:03:02,560 Speaker 1: it without actually benefiting the people, then the new government 49 00:03:02,919 --> 00:03:07,000 Speaker 1: shouldn't necessarily be responsible for that debt. And you can 50 00:03:07,040 --> 00:03:09,880 Speaker 1: imagine that the scenario where that would most likely apply 51 00:03:10,400 --> 00:03:13,080 Speaker 1: is something like where you have a dictator or a 52 00:03:13,160 --> 00:03:16,360 Speaker 1: despot that takes a bunch of debt and uses it 53 00:03:16,400 --> 00:03:20,600 Speaker 1: to terrorize his or her population, and then eventually, you know, 54 00:03:20,639 --> 00:03:23,600 Speaker 1: they get overthrown there's a new government. Should the people 55 00:03:23,720 --> 00:03:27,080 Speaker 1: that suffered under the previous regime have to pay back 56 00:03:27,120 --> 00:03:30,920 Speaker 1: the debt that the dictator actually borrowed? Right, It's a 57 00:03:30,960 --> 00:03:35,240 Speaker 1: great question, and of course incredibly complicated and automatically you 58 00:03:35,240 --> 00:03:37,680 Speaker 1: could imagine that the question of whether debt or is 59 00:03:37,800 --> 00:03:41,640 Speaker 1: debt is odious or not would be very subjective and 60 00:03:41,680 --> 00:03:46,119 Speaker 1: open to interpretation. But fundamentally, paying off a past debt 61 00:03:46,280 --> 00:03:50,880 Speaker 1: involves an imposition on real resources of a country. That's 62 00:03:50,960 --> 00:03:54,080 Speaker 1: less money that can go to domestic needs, social services, 63 00:03:54,440 --> 00:03:59,040 Speaker 1: rebuilding after a war, things like that. So while on 64 00:03:59,080 --> 00:04:01,280 Speaker 1: the one hand, you might say a nation's debt is 65 00:04:01,280 --> 00:04:04,320 Speaker 1: a nation's debt, uh, the question about what is very 66 00:04:04,400 --> 00:04:07,720 Speaker 1: what is realistic to impose on the new population, on 67 00:04:07,800 --> 00:04:12,440 Speaker 1: the new government in terms of damages and obligation to pay. 68 00:04:12,840 --> 00:04:18,920 Speaker 1: There's a major moral dimension, absolutely, And I mentioned at 69 00:04:18,920 --> 00:04:21,760 Speaker 1: the beginning of that definition that odious debt is really 70 00:04:21,839 --> 00:04:24,640 Speaker 1: just an idea. It doesn't exist in the real world. 71 00:04:24,680 --> 00:04:27,400 Speaker 1: But what we're going to talk about today is the 72 00:04:27,480 --> 00:04:32,160 Speaker 1: closest we ever got to odious debt actually being enacted 73 00:04:32,279 --> 00:04:36,880 Speaker 1: as some sort of legal precedent. The world did get 74 00:04:37,000 --> 00:04:39,680 Speaker 1: very close to it, and we're going to find out 75 00:04:39,800 --> 00:04:43,840 Speaker 1: exactly how close and why it didn't really materialize as 76 00:04:43,839 --> 00:04:46,160 Speaker 1: a concept, and we're going to do it through what 77 00:04:46,200 --> 00:04:48,760 Speaker 1: was really one of the most interesting debt restructurings of 78 00:04:48,760 --> 00:04:51,560 Speaker 1: all time. Great, I can't wait for this one, all right, 79 00:04:51,880 --> 00:04:54,320 Speaker 1: So I'm really happy to say our guest for this 80 00:04:54,440 --> 00:04:58,680 Speaker 1: episode is a previous Odd Thloughts guest Simon Henrickson, a 81 00:04:58,880 --> 00:05:02,840 Speaker 1: PhD student at the London School of Economics, has written 82 00:05:03,200 --> 00:05:08,279 Speaker 1: a fantastic paper about Iraq's debt restructuring and he's going 83 00:05:08,360 --> 00:05:10,159 Speaker 1: to walk us through it. Simon. It's great to have 84 00:05:10,200 --> 00:05:15,160 Speaker 1: you on. Thanks for having me so Simon. Uh, First 85 00:05:15,200 --> 00:05:18,200 Speaker 1: of all, it's a it is really a fantastic paper 86 00:05:18,240 --> 00:05:21,840 Speaker 1: and it's available on the lc website so everyone can 87 00:05:21,880 --> 00:05:25,960 Speaker 1: go and read it hopefully after the podcast. But it's 88 00:05:26,040 --> 00:05:30,400 Speaker 1: really fascinating because it's almost like people don't remember this 89 00:05:30,560 --> 00:05:34,520 Speaker 1: chapter of Iraq's history, I guess because it gets superseded 90 00:05:34,560 --> 00:05:38,800 Speaker 1: so much by multiple wars and you know a lot 91 00:05:38,839 --> 00:05:41,920 Speaker 1: of terrible things happening within its borders. But at one point, 92 00:05:42,600 --> 00:05:47,960 Speaker 1: Iraq was the most indebted country in the world. Correct 93 00:05:48,200 --> 00:05:51,800 Speaker 1: at the eve of the US invasion in twos and three, 94 00:05:52,160 --> 00:05:55,719 Speaker 1: Iraq was so indebted that it had more than five 95 00:05:55,760 --> 00:06:01,240 Speaker 1: times this GDP in national debt. Now, this story is 96 00:06:01,640 --> 00:06:04,640 Speaker 1: very long and has a bunch of different interesting topics, 97 00:06:04,680 --> 00:06:09,120 Speaker 1: everything from as you mentioned, odious debts where it was 98 00:06:09,200 --> 00:06:14,880 Speaker 1: fairly close to being enshrined in the doctrine of international law. 99 00:06:15,040 --> 00:06:18,240 Speaker 1: It had some powerful backers, but it also has all 100 00:06:18,279 --> 00:06:22,159 Speaker 1: the all the things that make for a fascinating financial story. 101 00:06:22,600 --> 00:06:26,040 Speaker 1: So one is that you didn't really know who actually 102 00:06:26,120 --> 00:06:28,159 Speaker 1: was owed a lot of the debt. Some of the 103 00:06:28,200 --> 00:06:30,840 Speaker 1: debt was political, some of the debt was owed through 104 00:06:31,480 --> 00:06:37,719 Speaker 1: variety of shady or illegal holdings. It included various national 105 00:06:37,760 --> 00:06:40,720 Speaker 1: intelligence agencies, and goes all the way back to the 106 00:06:40,720 --> 00:06:44,040 Speaker 1: early nineteen eighties. So this sort of a plethora of 107 00:06:45,000 --> 00:06:49,560 Speaker 1: things coming together in what I would argue is probably 108 00:06:49,720 --> 00:06:52,880 Speaker 1: one of the few successful things that happened in Iraq 109 00:06:53,440 --> 00:06:57,560 Speaker 1: in the post invasion reconstruction, which is why it sort 110 00:06:57,600 --> 00:07:02,719 Speaker 1: of often gets overlooked because so many other disastrous and 111 00:07:03,640 --> 00:07:06,920 Speaker 1: terrible things happened, whereas this sort of flew under the radar. 112 00:07:07,600 --> 00:07:12,160 Speaker 1: So before we obviously get to any talk of how 113 00:07:12,200 --> 00:07:16,320 Speaker 1: it was restructured, let's talk about how the debt was incurred. 114 00:07:16,320 --> 00:07:19,240 Speaker 1: As you point out in your paper in seventy nine, 115 00:07:19,280 --> 00:07:22,680 Speaker 1: it's still that point due to the country's tremendous oil 116 00:07:22,760 --> 00:07:25,440 Speaker 1: reserves and so forth, it was actually a net creditor 117 00:07:25,920 --> 00:07:27,320 Speaker 1: to the rest of the world, so it didn't have 118 00:07:27,400 --> 00:07:31,160 Speaker 1: any uh net sovereign debt. And then, as you point 119 00:07:31,200 --> 00:07:33,920 Speaker 1: out later, the debt by on the eve of the 120 00:07:33,960 --> 00:07:37,920 Speaker 1: invasion was several multiples of its GDP. How did the 121 00:07:38,000 --> 00:07:41,440 Speaker 1: debt start to get built up and who are the 122 00:07:41,440 --> 00:07:44,520 Speaker 1: original lenders to it? Why? And why did why did 123 00:07:44,600 --> 00:07:48,240 Speaker 1: they need this debt? Yeah, so if we go back 124 00:07:48,280 --> 00:07:52,000 Speaker 1: to the nineties seventies, is this really where at least 125 00:07:52,080 --> 00:07:57,560 Speaker 1: some of the current political discussions and wars originate. So 126 00:07:57,920 --> 00:08:01,000 Speaker 1: it was a time in which each eonomic growth was 127 00:08:01,040 --> 00:08:05,160 Speaker 1: actually fairly robust. Iraq came out of the nineteen seventies 128 00:08:05,560 --> 00:08:10,040 Speaker 1: with double digit growth trade. After the nationalization of the 129 00:08:10,120 --> 00:08:14,840 Speaker 1: Iraqi Petroleum Company, you had oil which said new highs 130 00:08:14,840 --> 00:08:19,520 Speaker 1: in terms of price. And Iraq came out in nineteventy 131 00:08:19,600 --> 00:08:22,000 Speaker 1: nine and was a net creditor to the world, So 132 00:08:22,120 --> 00:08:25,400 Speaker 1: there are foreign exchange research was somewhere around thirty five billion, 133 00:08:25,760 --> 00:08:28,320 Speaker 1: which is almost two thirds of his g d P. 134 00:08:29,000 --> 00:08:32,560 Speaker 1: And it's in that context at Santassa, Hussein takes over 135 00:08:32,920 --> 00:08:36,360 Speaker 1: and starts his his multi decade reign, so it actually 136 00:08:36,400 --> 00:08:38,640 Speaker 1: starts from a position of being a net creditor to 137 00:08:38,720 --> 00:08:43,320 Speaker 1: the world. Obviously, in the geopolitical sphere, this is also 138 00:08:43,360 --> 00:08:46,160 Speaker 1: a time when the rest of the Middle East undergoes 139 00:08:46,200 --> 00:08:52,600 Speaker 1: tremendous change. The seventy nine Iran Revolution, which ends up 140 00:08:52,640 --> 00:08:56,560 Speaker 1: with the with the Tehran hostage crisis of the U 141 00:08:56,679 --> 00:09:02,360 Speaker 1: s embathy means that Iran is not favorable favorably seen 142 00:09:02,960 --> 00:09:07,440 Speaker 1: by the rest of the world, and Saddam starts this 143 00:09:07,559 --> 00:09:10,920 Speaker 1: conflict in a in a sense in which he has 144 00:09:10,960 --> 00:09:16,280 Speaker 1: backing from almost all of the geopolitical world, anything from 145 00:09:16,440 --> 00:09:20,080 Speaker 1: the Soviets to the US to Europe. And it's really 146 00:09:20,120 --> 00:09:23,360 Speaker 1: in the context of the eight year war between Iran 147 00:09:23,440 --> 00:09:27,840 Speaker 1: and Iraq that the entire debt is raised or funded. 148 00:09:28,600 --> 00:09:32,160 Speaker 1: All of the debt is political water and comes from 149 00:09:32,640 --> 00:09:35,400 Speaker 1: a couple of different sources which can all sort of 150 00:09:35,440 --> 00:09:41,480 Speaker 1: be described as political backing for Iraq's war. So you have, 151 00:09:41,679 --> 00:09:45,000 Speaker 1: if we try to break it down into into three buckets, 152 00:09:45,120 --> 00:09:48,760 Speaker 1: you have the rest of the Middle East, the GCC country, 153 00:09:48,800 --> 00:09:52,800 Speaker 1: the Gulf countries who provide backing to Iraq because they 154 00:09:52,840 --> 00:09:57,280 Speaker 1: favor Iraq. They don't want Iran to become the Middle 155 00:09:57,280 --> 00:10:01,400 Speaker 1: East and hegemon. And some of these loans or grants 156 00:10:02,000 --> 00:10:06,320 Speaker 1: are given to simply just have Iraq by weapons import 157 00:10:06,559 --> 00:10:11,280 Speaker 1: for the for the war. Now, the grants or loans 158 00:10:11,280 --> 00:10:13,240 Speaker 1: and the reason I'm not just calling them loans is 159 00:10:13,280 --> 00:10:17,400 Speaker 1: that Iraq consider these things grants at the time. They 160 00:10:17,440 --> 00:10:19,600 Speaker 1: don't think they're loans. They just thinks they are to 161 00:10:19,760 --> 00:10:23,040 Speaker 1: help them back, whereas the rest of the countries, especially 162 00:10:23,080 --> 00:10:26,440 Speaker 1: Saudi and Kuwait, consider them loans and there is going 163 00:10:26,520 --> 00:10:29,600 Speaker 1: to be a debate about that later. The other one 164 00:10:29,800 --> 00:10:33,560 Speaker 1: is simply backing from other governments what we today would 165 00:10:33,600 --> 00:10:35,760 Speaker 1: call O E C D and ends up being restructured 166 00:10:35,800 --> 00:10:38,600 Speaker 1: in the Paris Club, which is the U S or Europe. 167 00:10:39,000 --> 00:10:43,800 Speaker 1: They both send direct money. They also sent personnel and 168 00:10:44,120 --> 00:10:48,120 Speaker 1: weapons to help Iraq fight the war. And then there 169 00:10:48,240 --> 00:10:51,679 Speaker 1: is the murky unknown loans that are sort of shrouded 170 00:10:51,760 --> 00:10:54,080 Speaker 1: in mystery, which we don't really know what comes from. 171 00:10:54,480 --> 00:10:58,480 Speaker 1: So the best example is a loan that was given 172 00:10:58,559 --> 00:11:01,760 Speaker 1: from BNL B and L at the time of the 173 00:11:01,840 --> 00:11:06,320 Speaker 1: nineteen eighties was Italian owned state bank, and it gave 174 00:11:07,080 --> 00:11:10,200 Speaker 1: almost two billion in loans to Iraq through a small 175 00:11:10,240 --> 00:11:14,520 Speaker 1: branch in Atlanta. Now, why would an Italian bank, they 176 00:11:14,520 --> 00:11:19,200 Speaker 1: don't bank, give big loans to Iraq through its Atlanta branch. Well, 177 00:11:19,240 --> 00:11:23,880 Speaker 1: the loans were underwritten by the Department of Agriculture, and 178 00:11:24,040 --> 00:11:27,120 Speaker 1: in the nineteen nineties it turned out that the Department 179 00:11:27,160 --> 00:11:31,400 Speaker 1: of Agriculture Corporation. Those loan subsidies were actually heavily influenced 180 00:11:31,400 --> 00:11:35,280 Speaker 1: by the CIA. There's a long story about that ended 181 00:11:35,360 --> 00:11:37,679 Speaker 1: up being called Iraq Gate at the time in the 182 00:11:37,760 --> 00:11:40,520 Speaker 1: nineteen nineties. But all of these loans, whether they were 183 00:11:40,520 --> 00:11:43,520 Speaker 1: officially sanctioned or they came sort of by way of 184 00:11:43,559 --> 00:11:48,040 Speaker 1: corporate quasi government loans, all of it means that Iraq 185 00:11:48,200 --> 00:11:51,200 Speaker 1: ends up taking on enormous debt in the nineteen eighties 186 00:11:51,240 --> 00:11:54,480 Speaker 1: and actually goes from being a net creditor to having 187 00:11:54,800 --> 00:11:58,040 Speaker 1: a dead to GDP ratio of over two hundred and fifty. 188 00:11:58,840 --> 00:12:00,880 Speaker 1: At the same time, obviously it goes to being a 189 00:12:00,880 --> 00:12:05,360 Speaker 1: war economy, and the numero right and the denominated both 190 00:12:05,360 --> 00:12:09,000 Speaker 1: gone the opposite direction. So Iraq from having double dig 191 00:12:09,080 --> 00:12:12,520 Speaker 1: to growth in the seventies end up having negative growth 192 00:12:12,520 --> 00:12:15,400 Speaker 1: all through the eighties and uses all of its money 193 00:12:15,400 --> 00:12:18,720 Speaker 1: on on the war effort. So it's in that context 194 00:12:18,760 --> 00:12:20,959 Speaker 1: that it goes from being a big net credits to 195 00:12:21,040 --> 00:12:25,960 Speaker 1: being very very indented country. So Iraq basically has the 196 00:12:26,000 --> 00:12:29,720 Speaker 1: goodwill of numerous actors in the Middle East as well 197 00:12:29,760 --> 00:12:33,440 Speaker 1: as international actors like the US, like the UK, and 198 00:12:33,480 --> 00:12:37,120 Speaker 1: it's basically fighting a proxy war against Iran, and these 199 00:12:37,120 --> 00:12:40,640 Speaker 1: countries and actors are willing to fund it, and that 200 00:12:41,000 --> 00:12:44,400 Speaker 1: starts the cycle of debt accumulation. But then at the 201 00:12:44,480 --> 00:12:47,320 Speaker 1: end of the war, its economy is also suffering and 202 00:12:47,400 --> 00:12:51,760 Speaker 1: so growth is slowing, and the debt to GDP ratio 203 00:12:52,280 --> 00:12:54,680 Speaker 1: really starts to explode at that point, but of course 204 00:12:55,360 --> 00:12:59,600 Speaker 1: it still has political goodwill on its side. But then 205 00:12:59,720 --> 00:13:03,520 Speaker 1: side mean you wrote that something quite big changes and 206 00:13:03,559 --> 00:13:07,640 Speaker 1: that's the point at which the debt actually becomes a problem. 207 00:13:07,760 --> 00:13:11,440 Speaker 1: What was that trigger point? After the Iran Iraq war 208 00:13:11,559 --> 00:13:13,760 Speaker 1: or really by the time of the end of it, 209 00:13:13,800 --> 00:13:18,680 Speaker 1: the geopolitical landscape changes. One is obviously that the Soviet 210 00:13:18,720 --> 00:13:22,439 Speaker 1: loses some of its influence in the world, and others 211 00:13:22,559 --> 00:13:27,520 Speaker 1: that Iraq overplays its hand, so it is victorious militarily, 212 00:13:28,080 --> 00:13:31,839 Speaker 1: but it ends up being a weak country in the 213 00:13:31,960 --> 00:13:36,160 Speaker 1: end in the in the geopolitical sense. And even then, 214 00:13:36,559 --> 00:13:40,040 Speaker 1: the dam after the war thinks that he has the 215 00:13:40,080 --> 00:13:42,600 Speaker 1: power to actually be the new big hedgemon in the 216 00:13:42,640 --> 00:13:46,000 Speaker 1: Middle East, so he starts to be more aggressive some 217 00:13:46,120 --> 00:13:50,320 Speaker 1: of the loans that he considered grants from Kuwait. There 218 00:13:50,400 --> 00:13:53,280 Speaker 1: is a dispute about that in the late eighties, and 219 00:13:53,320 --> 00:13:57,000 Speaker 1: he uses it as a pretext to invade Kuwait, which 220 00:13:57,120 --> 00:13:59,600 Speaker 1: ends up being the First Gulf War. At this point, 221 00:14:00,080 --> 00:14:04,240 Speaker 1: nobody is really on iraq side anymore. They're due political 222 00:14:04,880 --> 00:14:09,320 Speaker 1: support that was massive because nobody liked Iran after the 223 00:14:09,360 --> 00:14:13,800 Speaker 1: Hostice crisis has completely eraporated. And not only that, everyone 224 00:14:13,880 --> 00:14:17,320 Speaker 1: is afraid that after Kuwait, Iraq is gonna consider going 225 00:14:17,360 --> 00:14:20,160 Speaker 1: into Saudi Arabia, which is heavily supported by the West. 226 00:14:20,440 --> 00:14:23,960 Speaker 1: So Iraq is defeated, and instead of actually being able 227 00:14:24,000 --> 00:14:26,600 Speaker 1: to service these loans because it can just keep getting 228 00:14:26,640 --> 00:14:29,960 Speaker 1: money from its backers, it ends up starting to default 229 00:14:30,000 --> 00:14:33,920 Speaker 1: because the entert payment start to add up. It needs 230 00:14:33,960 --> 00:14:38,360 Speaker 1: to have more money for infrastructure. The reconstruction effort is 231 00:14:38,480 --> 00:14:42,520 Speaker 1: massive after the Iran Iraq War, and oil exports sort 232 00:14:42,560 --> 00:14:46,360 Speaker 1: of goes down quite dramatically. So it's in that context 233 00:14:46,400 --> 00:14:50,000 Speaker 1: that after the First Gulf War the world comes together 234 00:14:50,200 --> 00:14:55,720 Speaker 1: to sanction Saddam and put on not only sanctions but 235 00:14:55,880 --> 00:15:00,240 Speaker 1: also war reparations. You have big liabilities that in instead 236 00:15:00,280 --> 00:15:04,600 Speaker 1: of having the opportunity to roll over because it's easy 237 00:15:04,680 --> 00:15:07,440 Speaker 1: to issue new debts, all of a sudden, the geopolitical 238 00:15:07,640 --> 00:15:10,640 Speaker 1: wind of change means that they need to raise the 239 00:15:10,640 --> 00:15:13,400 Speaker 1: money by themselves, and there is no way that having 240 00:15:13,400 --> 00:15:18,120 Speaker 1: a debt to GDP ratio of over of which interest 241 00:15:18,160 --> 00:15:22,040 Speaker 1: rate payment is quite high. The oil exports that they 242 00:15:22,160 --> 00:15:25,680 Speaker 1: used to actually service the debt goes down because it 243 00:15:25,920 --> 00:15:29,320 Speaker 1: becomes harder to do trade and they are hit with 244 00:15:29,600 --> 00:15:33,640 Speaker 1: sanctions and reparations payments, which means that at this point 245 00:15:33,680 --> 00:15:37,440 Speaker 1: the default is complete. And by the time that the 246 00:15:37,480 --> 00:15:41,560 Speaker 1: official sanctions from the u N isolates Iraq from the 247 00:15:41,600 --> 00:15:46,160 Speaker 1: global economy, default is complete in Iraq sort of stops 248 00:15:46,200 --> 00:15:50,880 Speaker 1: any payments and withdraws from the global economy. So before 249 00:15:50,880 --> 00:15:55,120 Speaker 1: we go further, at this point, you know, obviously, uh 250 00:15:55,320 --> 00:15:59,120 Speaker 1: in recent years, we've seen sovereign debt restructurings and we've 251 00:15:59,160 --> 00:16:04,000 Speaker 1: seen different players. You have different interests, including the prominent 252 00:16:04,440 --> 00:16:09,360 Speaker 1: role that hedge funds or other private lenders have played 253 00:16:09,360 --> 00:16:12,560 Speaker 1: and trying to make sure they get paid. At this point, 254 00:16:13,360 --> 00:16:18,400 Speaker 1: is there much private ownership of iraqi sovereign debt? Is 255 00:16:18,440 --> 00:16:22,600 Speaker 1: it in private hands or is it largely different states? 256 00:16:22,680 --> 00:16:25,640 Speaker 1: And the CIA backed debt and you know, sort of 257 00:16:25,640 --> 00:16:29,360 Speaker 1: political debt as you call it, which is really the 258 00:16:29,480 --> 00:16:33,960 Speaker 1: height of indebtedness. The total liabilities, or if we start 259 00:16:34,000 --> 00:16:38,680 Speaker 1: with total debt, you have eight billion which is direct 260 00:16:38,720 --> 00:16:41,640 Speaker 1: debt to olway c D like countries meaning the West 261 00:16:41,720 --> 00:16:45,280 Speaker 1: and the US. Then you have fifty billion, which is 262 00:16:45,360 --> 00:16:49,000 Speaker 1: to golf states. These are the grants or the loans 263 00:16:49,000 --> 00:16:51,960 Speaker 1: of which nobody can really agree on what they are. 264 00:16:52,920 --> 00:16:55,760 Speaker 1: Then there are a bunch of smaller creditors which are 265 00:16:55,760 --> 00:16:59,760 Speaker 1: also countries, and then ten billion which is commercial debt, 266 00:16:59,760 --> 00:17:03,280 Speaker 1: which this sort of quasi bilateral. You don't really know 267 00:17:03,320 --> 00:17:06,160 Speaker 1: who it is, but in the sources at the time. 268 00:17:06,320 --> 00:17:10,600 Speaker 1: The commercial that also includes a wide variety of trade 269 00:17:10,640 --> 00:17:15,199 Speaker 1: credits or export credits. This can be loans that small 270 00:17:15,200 --> 00:17:20,520 Speaker 1: businessmen gave to Iraq or had lean's on and they 271 00:17:20,560 --> 00:17:23,919 Speaker 1: are small, but they will obviously grow over time. But 272 00:17:24,440 --> 00:17:29,200 Speaker 1: the main money owed here are to bilateral states, whether 273 00:17:29,280 --> 00:17:32,080 Speaker 1: that being O E c D or Gulf countries. And 274 00:17:32,080 --> 00:17:35,359 Speaker 1: there aren't really any hedge funds involved at the time. 275 00:17:35,960 --> 00:17:40,359 Speaker 1: This was way before people started talking about restructuring in 276 00:17:40,359 --> 00:17:43,919 Speaker 1: in terms of bolts of funds or anything like Argentina, 277 00:17:44,119 --> 00:18:00,960 Speaker 1: so it was primarily worded that was highly political. Simon 278 00:18:01,040 --> 00:18:03,560 Speaker 1: you say in the paper that you constructed, Um, I 279 00:18:03,600 --> 00:18:07,199 Speaker 1: think it's the first chart of Iraqs debt to GDP 280 00:18:07,359 --> 00:18:10,639 Speaker 1: ratio going all the way back to nine. Is that 281 00:18:10,720 --> 00:18:15,199 Speaker 1: right correct? How did you actually go about doing the 282 00:18:15,280 --> 00:18:20,080 Speaker 1: research for how much Iraq owed at these various points 283 00:18:20,119 --> 00:18:24,120 Speaker 1: in time, because, as you point out, it's sort of 284 00:18:24,160 --> 00:18:28,359 Speaker 1: a tangled web of obligations that they're weaving. Right. You 285 00:18:28,359 --> 00:18:32,600 Speaker 1: have everything from uh sovereign creditors like the United States 286 00:18:32,680 --> 00:18:36,119 Speaker 1: to a guy that you know imported a bunch of 287 00:18:36,160 --> 00:18:39,520 Speaker 1: frozen chickens into Basrah and wants to get paid. So 288 00:18:39,560 --> 00:18:42,080 Speaker 1: how did you actually go about accumulating all that data. 289 00:18:43,160 --> 00:18:45,399 Speaker 1: One of the things when you do restructuring is that 290 00:18:45,600 --> 00:18:48,520 Speaker 1: normally you know who's actually owed the money. So in 291 00:18:48,680 --> 00:18:54,000 Speaker 1: most sovereign restructurings, the main issue is external debt, which 292 00:18:54,080 --> 00:18:58,359 Speaker 1: is bonds held at either Europe, CLEO ord GCC. You 293 00:18:58,400 --> 00:19:00,800 Speaker 1: actually know who owns the bond and you can get 294 00:19:00,800 --> 00:19:06,560 Speaker 1: them together and make an offer or start negotiations. In Iraq, 295 00:19:07,240 --> 00:19:11,600 Speaker 1: all of the debt was incurred before, which means that 296 00:19:11,640 --> 00:19:16,439 Speaker 1: they were all loans they had been delinquent on for 297 00:19:16,520 --> 00:19:21,760 Speaker 1: a long time, and Iraq had been isolated and under 298 00:19:21,960 --> 00:19:25,280 Speaker 1: a severe bombardment by two thousand three, So it's actually 299 00:19:25,359 --> 00:19:27,600 Speaker 1: kind of hard to find out who's actually owed a 300 00:19:27,600 --> 00:19:29,520 Speaker 1: lot of money. So one of the first things that 301 00:19:29,560 --> 00:19:31,240 Speaker 1: the I m F and the Treasury did when they 302 00:19:31,320 --> 00:19:34,160 Speaker 1: came in was to try and get a sense of 303 00:19:34,240 --> 00:19:38,520 Speaker 1: who's actually owed all this money. And I start from 304 00:19:38,520 --> 00:19:42,200 Speaker 1: taking all of their hard work and say how much 305 00:19:42,280 --> 00:19:46,000 Speaker 1: was actually restructured in two thousand and six. So let's 306 00:19:46,040 --> 00:19:50,040 Speaker 1: assume that you are owed something, obviously you want to 307 00:19:50,080 --> 00:19:53,040 Speaker 1: get paid. The way to get paid is during the restructuring, 308 00:19:53,080 --> 00:19:55,480 Speaker 1: you come forward and tell them I am owed X 309 00:19:55,520 --> 00:19:58,400 Speaker 1: and Y, and then we can work our way backwards 310 00:19:58,400 --> 00:20:00,719 Speaker 1: from there. So I take the it's to stop from 311 00:20:00,760 --> 00:20:03,199 Speaker 1: there and then work my way backwards to try and 312 00:20:03,280 --> 00:20:06,160 Speaker 1: find out where are these loans actually placed in time. 313 00:20:06,480 --> 00:20:09,680 Speaker 1: And there's an incorrect sign, so obviously some of the 314 00:20:09,720 --> 00:20:13,399 Speaker 1: bigger loans we know which were where they were from. 315 00:20:13,480 --> 00:20:17,800 Speaker 1: It's easier when it's corporate or commercial loans because oftentimes 316 00:20:17,800 --> 00:20:21,000 Speaker 1: there are contracts, but if it's handshake deals, which sometimes 317 00:20:21,040 --> 00:20:23,359 Speaker 1: they are, it's a little bit hard. So what I 318 00:20:23,359 --> 00:20:25,960 Speaker 1: did was to take all the nominal amounts that were 319 00:20:26,000 --> 00:20:28,919 Speaker 1: restructured and then work my way backwards to try and 320 00:20:28,960 --> 00:20:32,440 Speaker 1: place them in time, and then see where do they originate, 321 00:20:32,520 --> 00:20:34,800 Speaker 1: where can we place them? And all of the loans 322 00:20:34,840 --> 00:20:39,919 Speaker 1: really are coming from the time during the Iran Iraq War. 323 00:20:40,280 --> 00:20:42,400 Speaker 1: That's a matter of trying to place them and then 324 00:20:42,480 --> 00:20:46,240 Speaker 1: find out what were the original loan amounts, how much 325 00:20:46,280 --> 00:20:48,679 Speaker 1: were they owed after what would the interest rates, and 326 00:20:48,720 --> 00:20:53,120 Speaker 1: then try to discount forward. And you describe your work 327 00:20:53,240 --> 00:20:56,000 Speaker 1: in the paper as I havn't done an oral history 328 00:20:56,640 --> 00:20:59,920 Speaker 1: of this because again it's so complicated. So what was 329 00:21:00,040 --> 00:21:02,280 Speaker 1: your process? Who did you go out and talk to 330 00:21:02,440 --> 00:21:07,679 Speaker 1: to actually sort of reconstruct the whole process. Yeah, So 331 00:21:07,760 --> 00:21:11,320 Speaker 1: that was that one, trying to find out the debt 332 00:21:11,400 --> 00:21:14,360 Speaker 1: history of Iraq because there was really no one who 333 00:21:14,400 --> 00:21:18,760 Speaker 1: had done a comprehensive study covering all the time from 334 00:21:18,840 --> 00:21:22,120 Speaker 1: nineteen seventy nine to two thousand and three. There were 335 00:21:22,160 --> 00:21:26,679 Speaker 1: some bits pieces here, obviously, I for from some of 336 00:21:26,680 --> 00:21:29,760 Speaker 1: the great works that's been done before, but getting to 337 00:21:30,240 --> 00:21:32,840 Speaker 1: the debt history up until two thousands three only got 338 00:21:32,880 --> 00:21:35,360 Speaker 1: me so far. The second part was to actually look 339 00:21:35,359 --> 00:21:38,119 Speaker 1: at the restructuring. So the oral history is that I 340 00:21:38,160 --> 00:21:41,360 Speaker 1: went out and I talked to everyone who were actually involved. 341 00:21:41,440 --> 00:21:44,840 Speaker 1: So this would be the lawyers, this would be the bankers, 342 00:21:44,920 --> 00:21:48,160 Speaker 1: the officials who were involved for the UK, the US 343 00:21:48,240 --> 00:21:51,560 Speaker 1: governments who actually conducted the negotiations, and then a lot 344 00:21:51,560 --> 00:21:55,560 Speaker 1: of primary sources. So you have all of the press releases, 345 00:21:55,600 --> 00:21:58,359 Speaker 1: you have all the negotiation papers, you have all of 346 00:21:58,400 --> 00:22:02,600 Speaker 1: the restructured and conciliation documents that you can go see. 347 00:22:02,720 --> 00:22:04,639 Speaker 1: So a lot of the loans that I found and 348 00:22:04,680 --> 00:22:09,200 Speaker 1: trace back were actually from documents that were given during 349 00:22:09,200 --> 00:22:11,880 Speaker 1: the restructuring so that they could get paid and then 350 00:22:11,920 --> 00:22:15,480 Speaker 1: try to work backwards who were the banks So that BNL, 351 00:22:15,600 --> 00:22:18,240 Speaker 1: for example, the c I A Link loans from the 352 00:22:18,800 --> 00:22:22,440 Speaker 1: eighties was restructured in two thousand and six as part 353 00:22:22,560 --> 00:22:27,119 Speaker 1: of by that time at BNP party boss claim on Iraq, 354 00:22:27,160 --> 00:22:29,639 Speaker 1: which had just been on a non performing loans on 355 00:22:29,720 --> 00:22:33,320 Speaker 1: its book for almost twenty years. Well let's talk about 356 00:22:33,400 --> 00:22:36,639 Speaker 1: the restructuring then, um, because we're we've been building up 357 00:22:36,680 --> 00:22:39,520 Speaker 1: to that point. So I guess in the early two 358 00:22:39,600 --> 00:22:44,480 Speaker 1: thousand's everyone certainly remembers, um what happened with the US 359 00:22:44,600 --> 00:22:50,119 Speaker 1: invading Iraq, and after that the restructuring really begins in 360 00:22:50,200 --> 00:22:53,800 Speaker 1: two thousand three. So how does that process kick off 361 00:22:53,880 --> 00:22:57,640 Speaker 1: and what were the motivations of actually doing the restructuring. 362 00:22:59,320 --> 00:23:00,920 Speaker 1: There are a few ger bring accounts on what the 363 00:23:01,000 --> 00:23:04,320 Speaker 1: motivations actually were. Now, I would put them broadly in 364 00:23:04,359 --> 00:23:09,360 Speaker 1: two categories. One was moral or political, and they are 365 00:23:09,359 --> 00:23:11,639 Speaker 1: sort of together in that it was part of the 366 00:23:11,760 --> 00:23:17,439 Speaker 1: reconstruction program where the US led coalition would like to 367 00:23:17,480 --> 00:23:21,080 Speaker 1: get Iraq rebuilt. Obviously, there was a big that overhang, 368 00:23:21,240 --> 00:23:26,320 Speaker 1: and the government at the time was heavily favoring market 369 00:23:26,359 --> 00:23:28,800 Speaker 1: forces and they wanted Iraq to be part of the 370 00:23:28,880 --> 00:23:31,800 Speaker 1: global economy. Again, it's a lot easier if you don't 371 00:23:31,840 --> 00:23:36,240 Speaker 1: have a lot of outstanding credits that can be attached 372 00:23:36,240 --> 00:23:38,919 Speaker 1: by various creditors at any times. That they wanted to 373 00:23:38,960 --> 00:23:42,800 Speaker 1: clear it up so that Iraq could regain entry. That 374 00:23:43,000 --> 00:23:48,040 Speaker 1: is sort of the political part. The second part was 375 00:23:48,040 --> 00:23:51,520 Speaker 1: was more moral in the sense that this was they 376 00:23:51,520 --> 00:23:56,520 Speaker 1: had liberated Bush and Cheney had liberated Saddam and Iraq 377 00:23:56,600 --> 00:24:01,359 Speaker 1: from Saddam, and they thought that the debt should not 378 00:24:01,520 --> 00:24:03,840 Speaker 1: be carried over. So this is where the odious dead 379 00:24:03,880 --> 00:24:06,440 Speaker 1: part comes in. There are differing accounts as to how 380 00:24:06,480 --> 00:24:10,199 Speaker 1: big affects this actually was at the time, and I 381 00:24:10,200 --> 00:24:12,520 Speaker 1: will say that depending on who you talk to. Some 382 00:24:12,560 --> 00:24:15,000 Speaker 1: people say that it wasn't important at all, and some 383 00:24:15,080 --> 00:24:17,520 Speaker 1: people will say that it was very important. There were 384 00:24:17,640 --> 00:24:20,440 Speaker 1: several official statements of the Treasury Secretary did say that 385 00:24:20,480 --> 00:24:24,719 Speaker 1: they considered declaring that that odious, but they wanted it 386 00:24:24,760 --> 00:24:29,360 Speaker 1: for both moral and political political reasons. So what did 387 00:24:29,359 --> 00:24:32,440 Speaker 1: they actually do. Well, if we take our mind back 388 00:24:32,480 --> 00:24:34,560 Speaker 1: to two thousand three when they actually tried to make 389 00:24:34,600 --> 00:24:38,720 Speaker 1: the invasion legal, the first U N resolution actually had 390 00:24:39,040 --> 00:24:42,520 Speaker 1: very important provisions in for the debt restructuring, which was 391 00:24:42,600 --> 00:24:45,760 Speaker 1: that it immunized all of Iraqi the assets from credits 392 00:24:45,760 --> 00:24:50,000 Speaker 1: to attachment. This is fairly big and not something that's 393 00:24:50,040 --> 00:24:54,200 Speaker 1: normally done in sovereign debt restructuring, and it's important because 394 00:24:54,960 --> 00:24:59,120 Speaker 1: Iraq had lots of oil assets that were abroad and 395 00:24:59,320 --> 00:25:02,160 Speaker 1: if all of a sudden creditors started to come out 396 00:25:02,160 --> 00:25:04,320 Speaker 1: of the woodwork and say we want to get paid 397 00:25:04,800 --> 00:25:07,480 Speaker 1: on our money on our debt, then they could start 398 00:25:07,520 --> 00:25:10,920 Speaker 1: to attach these oil assets. So it was enshrined into 399 00:25:11,080 --> 00:25:16,720 Speaker 1: un law that Iraqi assets were immunized from credits attachment, 400 00:25:17,000 --> 00:25:19,000 Speaker 1: which was sort of the step one and was part 401 00:25:19,080 --> 00:25:24,720 Speaker 1: of the discussions from even before the invasion. Now, after 402 00:25:24,800 --> 00:25:28,000 Speaker 1: that it got a pretty big push from the economic 403 00:25:28,040 --> 00:25:30,919 Speaker 1: part of the invasion. For so, the c p A, 404 00:25:31,440 --> 00:25:35,400 Speaker 1: the provisional government that the u that the coalition set up, 405 00:25:35,960 --> 00:25:39,760 Speaker 1: had an economic office, of which it had a couple 406 00:25:39,760 --> 00:25:43,120 Speaker 1: of big projects, of which debt restructuring was was one 407 00:25:43,119 --> 00:25:45,400 Speaker 1: of the main ones. So it was from early on 408 00:25:45,840 --> 00:25:48,399 Speaker 1: agreed that there would be a debt restructuring. And you 409 00:25:48,440 --> 00:25:51,960 Speaker 1: can see if you go back Bush the Treasure Security 410 00:25:52,040 --> 00:25:56,160 Speaker 1: cherry Snow, they all talked about this is a priority 411 00:25:56,320 --> 00:26:00,880 Speaker 1: in the reconstruction of Iraq. Okay, So we have the 412 00:26:01,000 --> 00:26:05,639 Speaker 1: u N statement immunizing domestic energy assets from being seized 413 00:26:05,680 --> 00:26:11,000 Speaker 1: by creditors. We have the rhetoric about wanting some sort 414 00:26:11,040 --> 00:26:14,680 Speaker 1: of restructuring and some talking about how this debt should 415 00:26:14,720 --> 00:26:18,919 Speaker 1: be seen as odious and therefore canceled. What was the gap, 416 00:26:19,119 --> 00:26:21,639 Speaker 1: if any, between the rhetoric that we heard from the 417 00:26:21,640 --> 00:26:26,240 Speaker 1: Bush administration versus what actually got put into practice in 418 00:26:26,320 --> 00:26:29,240 Speaker 1: terms of the restructuring and where did that Where did 419 00:26:29,280 --> 00:26:32,159 Speaker 1: things break down in that respect. I don't know if 420 00:26:32,160 --> 00:26:35,840 Speaker 1: they really broke down, but they started earlier. They started 421 00:26:35,880 --> 00:26:38,520 Speaker 1: early on to to talk about how do we actually 422 00:26:38,520 --> 00:26:41,200 Speaker 1: want to do this restructuring. So there are a couple 423 00:26:41,200 --> 00:26:44,280 Speaker 1: of different ways you can go a bottle restructuring. Obviously, 424 00:26:44,560 --> 00:26:49,119 Speaker 1: Iraq had three big credit groups. One was the Paris 425 00:26:49,160 --> 00:26:52,200 Speaker 1: Club people. These are the O E C D developed 426 00:26:52,200 --> 00:26:56,480 Speaker 1: countries who are bold money directly, a lot of negotiations 427 00:26:56,480 --> 00:27:00,400 Speaker 1: stopt there. And there was the commercial creditors which were 428 00:27:00,400 --> 00:27:03,280 Speaker 1: owed money. And then the bilateral governments which are all 429 00:27:03,320 --> 00:27:06,520 Speaker 1: the non Paris Club, which mainly means in this instance 430 00:27:06,520 --> 00:27:12,520 Speaker 1: of golf states in China and the US had enormous 431 00:27:12,560 --> 00:27:17,760 Speaker 1: political power to put behind pushing for a deal, especially 432 00:27:17,800 --> 00:27:20,160 Speaker 1: at the Paris Club. So this is where they started, 433 00:27:21,160 --> 00:27:23,200 Speaker 1: and they went to the Paris Club saying that we 434 00:27:23,240 --> 00:27:26,639 Speaker 1: want as much debt right down as is possible. And 435 00:27:27,560 --> 00:27:31,040 Speaker 1: this is where the context about the time of negotiations 436 00:27:31,240 --> 00:27:36,720 Speaker 1: is important. So it varies enormously how big haircut government 437 00:27:37,000 --> 00:27:39,560 Speaker 1: credits is actually take on their somhere in debt. So 438 00:27:39,840 --> 00:27:43,040 Speaker 1: we have stories about as low as less than twenty 439 00:27:43,080 --> 00:27:45,480 Speaker 1: percent haircut as was the case in Urugu are to 440 00:27:45,840 --> 00:27:51,040 Speaker 1: almost eighty, which is the case of Argentinean the Argentinean 441 00:27:51,119 --> 00:27:54,879 Speaker 1: restructuring in two thousand and five. Obviously there were things 442 00:27:54,880 --> 00:27:57,880 Speaker 1: happening after that, but just in terms of the haircut 443 00:27:57,920 --> 00:28:00,879 Speaker 1: that credit is take. It was actually during the time 444 00:28:01,280 --> 00:28:05,400 Speaker 1: more credits of friendly restructurings that were the normal. Obviously, 445 00:28:05,400 --> 00:28:07,960 Speaker 1: going out and saying we would like your debt to 446 00:28:07,960 --> 00:28:13,160 Speaker 1: be restructured at somewhere around haircut was a pretty big 447 00:28:13,200 --> 00:28:16,680 Speaker 1: ask at a time when creditors actually had a lot 448 00:28:16,720 --> 00:28:20,199 Speaker 1: of power to say that. So the initial talk is 449 00:28:20,320 --> 00:28:23,199 Speaker 1: where do we actually go about during the restructurings and 450 00:28:23,240 --> 00:28:26,480 Speaker 1: how can we use the political muscle to push it through. 451 00:28:26,840 --> 00:28:31,320 Speaker 1: This is where you have the two groups of people 452 00:28:31,320 --> 00:28:34,199 Speaker 1: who are normally involved in restructurings. So this would be 453 00:28:34,240 --> 00:28:37,119 Speaker 1: the im s and the U S treasuries and the 454 00:28:37,160 --> 00:28:40,160 Speaker 1: bankers and the lawyers of the world who want to 455 00:28:40,200 --> 00:28:44,080 Speaker 1: do a normal restructuring where you do either at debt 456 00:28:44,120 --> 00:28:46,760 Speaker 1: for debt swap or at debt for cash swap. You 457 00:28:46,800 --> 00:28:50,360 Speaker 1: do it through the normal channels of negotiations, or you 458 00:28:50,480 --> 00:28:55,840 Speaker 1: had the non standard players, so the White House, the Pentagon, 459 00:28:56,240 --> 00:28:59,040 Speaker 1: all of the grassroots organizations who say, you know what, 460 00:28:59,240 --> 00:29:02,400 Speaker 1: all this death that Iraq has, we want you to 461 00:29:02,520 --> 00:29:05,840 Speaker 1: declare it odious because it is not moral to pay 462 00:29:05,840 --> 00:29:08,840 Speaker 1: it at all. The debt was not for the people, 463 00:29:09,120 --> 00:29:12,920 Speaker 1: It had no benefit. It was for the personal enrichment 464 00:29:13,120 --> 00:29:16,600 Speaker 1: of that I'm who signed and it was really used 465 00:29:17,120 --> 00:29:21,080 Speaker 1: for a political war in which the citizens of Iraq 466 00:29:21,240 --> 00:29:23,680 Speaker 1: didn't really play a big role. So it's the clash 467 00:29:23,720 --> 00:29:27,760 Speaker 1: of those two and both of them came out in 468 00:29:27,800 --> 00:29:29,640 Speaker 1: the same way in the sense that they wanted it 469 00:29:29,720 --> 00:29:32,440 Speaker 1: that right down to be big. But whether you go 470 00:29:32,640 --> 00:29:36,360 Speaker 1: through a normal restructuring process, whether you declare the dead odious, 471 00:29:36,640 --> 00:29:41,000 Speaker 1: have two very different outcomes. So there's this internal battle 472 00:29:41,080 --> 00:29:44,640 Speaker 1: between the groups, and as you might have guessed, the 473 00:29:44,720 --> 00:29:46,640 Speaker 1: I m F and the treasuries and the people who 474 00:29:46,640 --> 00:29:50,760 Speaker 1: are actually involved ends up being on top. And the 475 00:29:50,800 --> 00:29:54,760 Speaker 1: reason is that they convinced everyone else that one this 476 00:29:54,840 --> 00:29:58,040 Speaker 1: is how that restructuring should work. We don't really want 477 00:29:58,080 --> 00:30:00,400 Speaker 1: to open the can of worms of star adding to 478 00:30:00,520 --> 00:30:05,680 Speaker 1: declare sovereign debt odious, and we can get a big 479 00:30:05,760 --> 00:30:08,080 Speaker 1: right down anyway. So they went out and said, you 480 00:30:08,120 --> 00:30:12,000 Speaker 1: know what, we can probably get haircut. We think that 481 00:30:12,480 --> 00:30:16,480 Speaker 1: it's not needed to be declared odious. And in the end, 482 00:30:16,760 --> 00:30:20,480 Speaker 1: the opening gambit from the coalition side at the Paris Club, 483 00:30:20,640 --> 00:30:24,760 Speaker 1: which is where sovereign debt negotiations are negotiated at the 484 00:30:24,760 --> 00:30:29,080 Speaker 1: Paris Treasury, the French Treasury in Paris. Our opening gambit 485 00:30:29,200 --> 00:30:32,240 Speaker 1: is that we're going to say we can get hair cut. 486 00:30:32,440 --> 00:30:35,800 Speaker 1: Obviously it ended up a little bit lower, but the 487 00:30:35,880 --> 00:30:38,880 Speaker 1: US and the UK when pretty hard and said, you 488 00:30:38,920 --> 00:30:40,960 Speaker 1: know what, we can we can do it the normal 489 00:30:41,000 --> 00:30:43,520 Speaker 1: way and we can get where you want us to be. 490 00:30:44,240 --> 00:30:47,640 Speaker 1: The other side of that was all of mostly the Europeans, 491 00:30:47,640 --> 00:30:51,480 Speaker 1: so the Russian and the German and the French, who 492 00:30:51,560 --> 00:30:55,680 Speaker 1: thought that haircut was actually a little bit excessive, they 493 00:30:55,720 --> 00:31:00,480 Speaker 1: thought is better. And the US was not really a creditor, 494 00:31:00,840 --> 00:31:03,240 Speaker 1: so while they had political muscles, they didn't really have 495 00:31:03,320 --> 00:31:06,160 Speaker 1: much that they only had four billions, and they end 496 00:31:06,280 --> 00:31:10,120 Speaker 1: up doing it in in the takes many months negotiation 497 00:31:10,200 --> 00:31:12,480 Speaker 1: back and forth. It ends up being agreed at a 498 00:31:12,520 --> 00:31:16,840 Speaker 1: stummit in Chile between Putin and Push, where Push has 499 00:31:16,880 --> 00:31:21,960 Speaker 1: to personally push Putin at three separate meetings at the 500 00:31:22,000 --> 00:31:25,280 Speaker 1: margins of the summits actually get a get a deal, 501 00:31:26,040 --> 00:31:28,480 Speaker 1: and the deal they get is fairly harsh on creditors. 502 00:31:28,480 --> 00:31:33,600 Speaker 1: So they end up with haircut which comes in three trenches, 503 00:31:33,960 --> 00:31:36,760 Speaker 1: and they do it in a way that not actually 504 00:31:36,800 --> 00:31:39,120 Speaker 1: normal for the Paris clubs. So there is this idea 505 00:31:39,160 --> 00:31:44,480 Speaker 1: about flow treatment and stock reduction. So normally you take 506 00:31:44,600 --> 00:31:48,160 Speaker 1: the flow treatment first. Now this wasn't really an issue 507 00:31:48,240 --> 00:31:51,840 Speaker 1: for Iraq because they didn't really pay interest on the loans, 508 00:31:52,160 --> 00:31:54,960 Speaker 1: but you don't really write down the dead until all 509 00:31:55,000 --> 00:32:00,040 Speaker 1: of the conditions are met. The that reduction came, you 510 00:32:00,120 --> 00:32:03,280 Speaker 1: sent up front, and then the IMF got involved over 511 00:32:03,360 --> 00:32:07,760 Speaker 1: two times to actually helped provided that sustainability analysis, which 512 00:32:08,040 --> 00:32:10,920 Speaker 1: by the Europeans at the time were considered a work 513 00:32:10,960 --> 00:32:14,960 Speaker 1: of fiction because it's underscored how much revenue would come 514 00:32:15,000 --> 00:32:18,480 Speaker 1: from oil and it was a rigid assumption that didn't 515 00:32:18,520 --> 00:32:21,880 Speaker 1: change at all. But they ended up taking an ad 516 00:32:21,920 --> 00:32:24,200 Speaker 1: net person value reduction on all of the debt of 517 00:32:24,520 --> 00:32:28,360 Speaker 1: just under nine which by the time is far higher 518 00:32:28,400 --> 00:32:32,520 Speaker 1: than any other sovereign debt restructuring in the last twenty years. Okay, 519 00:32:32,560 --> 00:32:40,600 Speaker 1: so haircut of about how replicable would such a debt 520 00:32:40,600 --> 00:32:43,760 Speaker 1: restructuring b again, because it seems like this one is 521 00:32:43,800 --> 00:32:47,920 Speaker 1: fairly unusual in the sense that you had the u 522 00:32:48,120 --> 00:32:53,040 Speaker 1: N which somehow was able to immunize or protect Iraq's 523 00:32:53,080 --> 00:32:56,520 Speaker 1: biggest assets, which were tied to its oil industry. And 524 00:32:56,560 --> 00:33:00,640 Speaker 1: then you also have this big player, this big influential 525 00:33:00,720 --> 00:33:05,080 Speaker 1: player in the form of the US actively lobbying for 526 00:33:05,120 --> 00:33:07,520 Speaker 1: the best possible terms for Iraq, and I should just 527 00:33:07,560 --> 00:33:10,480 Speaker 1: mention also you had one of the best debt restructuring 528 00:33:10,560 --> 00:33:14,600 Speaker 1: lawyers around and also a previous all Thoughts guest Lee 529 00:33:14,680 --> 00:33:18,840 Speaker 1: Bookite over at Cleary Gottlieb or formerly of Cleary Gotlieb, 530 00:33:19,560 --> 00:33:24,560 Speaker 1: representing Iraq. So all these great things going for Iraq 531 00:33:24,600 --> 00:33:27,400 Speaker 1: when it comes to this debt restructuring. So is it 532 00:33:27,520 --> 00:33:31,560 Speaker 1: just an isolated incident of one of these things going 533 00:33:31,640 --> 00:33:35,080 Speaker 1: right for once? I think it's an isolated incident in 534 00:33:35,120 --> 00:33:37,640 Speaker 1: the sense that at the Paris Club they had the 535 00:33:37,760 --> 00:33:42,760 Speaker 1: political backing off a coalition which we're all on the 536 00:33:42,800 --> 00:33:48,160 Speaker 1: same side and mostly represented the big creditors. They had 537 00:33:48,200 --> 00:33:53,560 Speaker 1: the u N resolution, which meant that it was really 538 00:33:53,600 --> 00:33:56,160 Speaker 1: hot for the creditors to do anything. There were no 539 00:33:56,240 --> 00:34:00,560 Speaker 1: remedies to actually enforce the debt. And this not only 540 00:34:00,600 --> 00:34:04,600 Speaker 1: the sovereign debt, but Iraq during the sanctions period had 541 00:34:04,640 --> 00:34:09,600 Speaker 1: sort of the quality of Iraq had morphed into everything 542 00:34:09,640 --> 00:34:12,480 Speaker 1: being under the states. So it wasn't just the state 543 00:34:12,600 --> 00:34:16,880 Speaker 1: liabilities that were being restructured. It was also the quasi bank, 544 00:34:17,040 --> 00:34:20,600 Speaker 1: the quasi governmental organizations, so such as the big banks 545 00:34:21,960 --> 00:34:25,560 Speaker 1: and the u N Revolution Resolution really stopped anyone from 546 00:34:25,600 --> 00:34:29,680 Speaker 1: trying to enforce the credits of right, which meant that 547 00:34:30,080 --> 00:34:34,320 Speaker 1: a lot of people didn't engage. So whereas in Argentina 548 00:34:34,400 --> 00:34:38,800 Speaker 1: you have Hetch funds like Elliott coming in seeing that 549 00:34:39,360 --> 00:34:42,080 Speaker 1: we can make a good argument that we should be 550 00:34:42,120 --> 00:34:45,560 Speaker 1: paid more than the restructuring offer. Because there were no 551 00:34:45,960 --> 00:34:49,480 Speaker 1: remedies for creditors to actually force Iraq to pay, they 552 00:34:49,520 --> 00:34:52,920 Speaker 1: didn't They didn't really engage, which meant that it is 553 00:34:53,440 --> 00:34:56,560 Speaker 1: unique in the sense that it was very easy to 554 00:34:56,560 --> 00:34:59,959 Speaker 1: actually get everyone to pay. So after the Paris Club 555 00:35:00,000 --> 00:35:06,120 Speaker 1: negotiations were conducted, the commercial restructuring was a little bit 556 00:35:06,160 --> 00:35:09,960 Speaker 1: easier in the sense that there was a comparability of 557 00:35:10,080 --> 00:35:14,040 Speaker 1: treatment costs in the Paris Club, meaning that no other 558 00:35:14,080 --> 00:35:17,400 Speaker 1: creditors could get a better deal, which meant that you 559 00:35:17,480 --> 00:35:20,279 Speaker 1: could go out to everyone and say, if you are 560 00:35:20,320 --> 00:35:22,520 Speaker 1: owed money, this is the best deal that you're going 561 00:35:22,560 --> 00:35:26,959 Speaker 1: to get, and if you don't take it, you can 562 00:35:27,040 --> 00:35:32,560 Speaker 1: try and see us. But there is a immunization agreement 563 00:35:32,600 --> 00:35:34,680 Speaker 1: at the u N which means that you're probably going 564 00:35:34,719 --> 00:35:37,560 Speaker 1: to have to wait fifteen years to have a chance, 565 00:35:38,360 --> 00:35:42,000 Speaker 1: and by that time who knows, and it would cost 566 00:35:42,040 --> 00:35:43,759 Speaker 1: a lot of lawyers, and it will cost a lot 567 00:35:43,800 --> 00:35:49,280 Speaker 1: of waiting, whereas we can give you on your notional 568 00:35:49,880 --> 00:35:53,600 Speaker 1: and then also pay a crude interest on any loans 569 00:35:53,640 --> 00:35:56,920 Speaker 1: which is not insubstantial. So they ended up paying library 570 00:35:56,960 --> 00:35:59,759 Speaker 1: plus seventy five basis point from the time of the 571 00:35:59,800 --> 00:36:02,800 Speaker 1: same actions, in which you know, a cruise at a 572 00:36:03,040 --> 00:36:07,680 Speaker 1: at a pace. They got everyone to agree, really of 573 00:36:07,760 --> 00:36:11,480 Speaker 1: all creditors took the deal, and there were no one 574 00:36:11,560 --> 00:36:15,520 Speaker 1: who really stood out and tried to say, we don't 575 00:36:15,560 --> 00:36:18,319 Speaker 1: want it, we're going to sue, we're not going to engage. 576 00:36:18,560 --> 00:36:21,879 Speaker 1: The people who were really unhappy were, on the other hand, 577 00:36:21,920 --> 00:36:26,319 Speaker 1: people who thought that this is a list opportunity in 578 00:36:26,320 --> 00:36:28,400 Speaker 1: the sense that we could have done the odious that 579 00:36:29,080 --> 00:36:33,920 Speaker 1: discussion and actually try to use the political power behind 580 00:36:34,000 --> 00:36:38,000 Speaker 1: this particular restructuring to say, you know what, we are 581 00:36:38,040 --> 00:36:42,239 Speaker 1: going to try and enshrine it in international law. And 582 00:36:42,719 --> 00:36:44,719 Speaker 1: it is not moral that they are paid at all, 583 00:36:45,200 --> 00:36:49,319 Speaker 1: because this was not money that really was owed in 584 00:36:49,360 --> 00:36:53,319 Speaker 1: good faith. So talk about that. What would have been 585 00:36:53,560 --> 00:36:58,200 Speaker 1: in so you some alternate history, what might have been 586 00:36:58,520 --> 00:37:03,200 Speaker 1: the ramifications mentioned the Pandora's box if they had enshrined 587 00:37:03,320 --> 00:37:07,560 Speaker 1: this concept that some debt is inherently odious and there's 588 00:37:07,600 --> 00:37:11,240 Speaker 1: not necessarily moral to pay it back. Had that concept 589 00:37:11,360 --> 00:37:14,839 Speaker 1: would have been put into application with Iraqi debt restructuring, 590 00:37:15,120 --> 00:37:21,040 Speaker 1: what might that have meant uh subsequently for subsequent restructurings. 591 00:37:21,440 --> 00:37:23,839 Speaker 1: I think it really would have been Pandora's box in 592 00:37:23,880 --> 00:37:28,160 Speaker 1: the sense that we don't know, but there were fairly 593 00:37:28,440 --> 00:37:34,280 Speaker 1: serious discussions to the top of the US government about 594 00:37:34,320 --> 00:37:36,239 Speaker 1: actually starting to do this. So if you go back 595 00:37:36,280 --> 00:37:41,600 Speaker 1: at the time the think tank and policy world, among 596 00:37:41,680 --> 00:37:45,480 Speaker 1: them academics, there is a big discussion about actually declaring 597 00:37:45,480 --> 00:37:48,600 Speaker 1: the debt odious, and there are overtures in that direction, 598 00:37:48,960 --> 00:37:51,640 Speaker 1: And it would have meant that other people lending money 599 00:37:51,840 --> 00:37:56,720 Speaker 1: to desperates around the world would have had to think 600 00:37:56,760 --> 00:38:00,440 Speaker 1: twice and not just say, oh, you know what. Idea 601 00:38:00,480 --> 00:38:04,919 Speaker 1: of sovereign debt is that the intergenerational loans of one 602 00:38:05,000 --> 00:38:08,520 Speaker 1: government is honored by the next government, which is really 603 00:38:08,840 --> 00:38:14,000 Speaker 1: one of the main foundations in international finance at the time. 604 00:38:14,680 --> 00:38:17,200 Speaker 1: You would have had to step back and say, okay, 605 00:38:17,239 --> 00:38:22,200 Speaker 1: so if you lend money to a desperate or a dictator, 606 00:38:22,719 --> 00:38:27,279 Speaker 1: the international law is there might be an argument that 607 00:38:27,360 --> 00:38:31,040 Speaker 1: you should not get your money back. Obviously, there are 608 00:38:31,239 --> 00:38:34,239 Speaker 1: lots of people with interest in one way or the other. 609 00:38:34,640 --> 00:38:37,080 Speaker 1: So you know, it's hard for me to say what 610 00:38:37,160 --> 00:38:39,439 Speaker 1: would actually happen, but I think it could have been 611 00:38:39,480 --> 00:38:42,279 Speaker 1: one of the few instances of which you would have 612 00:38:42,320 --> 00:38:45,319 Speaker 1: had a chance. Because the powers that be were so 613 00:38:45,480 --> 00:38:50,959 Speaker 1: uniformly behind Iraq and getting proper debt relief at the time, 614 00:38:51,320 --> 00:38:54,600 Speaker 1: they were able to create a new approach at the 615 00:38:54,640 --> 00:38:57,360 Speaker 1: Paris Club, the Ebing approach, which was a way to 616 00:38:58,000 --> 00:39:02,520 Speaker 1: not take the standard template of debt restructuring but actually say, 617 00:39:02,600 --> 00:39:07,239 Speaker 1: for highly embedded, low income countries we have we can 618 00:39:07,280 --> 00:39:09,400 Speaker 1: do a special way of actually looking at what do 619 00:39:09,520 --> 00:39:13,000 Speaker 1: they need. You had us who ended up writing off 620 00:39:13,040 --> 00:39:16,160 Speaker 1: all of their depths, so they wrote off everything after 621 00:39:16,200 --> 00:39:20,040 Speaker 1: the restructuring, and there was the U N resolution. So 622 00:39:20,080 --> 00:39:21,920 Speaker 1: all of it comes together as to say this was 623 00:39:22,160 --> 00:39:27,479 Speaker 1: very This was unique restructuring in that the creditors were 624 00:39:28,480 --> 00:39:32,759 Speaker 1: just immensely successful and actually writing it off and ending 625 00:39:32,760 --> 00:39:37,359 Speaker 1: with a with a clean slate, but under the terms 626 00:39:37,400 --> 00:39:41,160 Speaker 1: of the old sovereign debt restructuring. So it was successful 627 00:39:41,200 --> 00:39:44,680 Speaker 1: if we say, okay, compared to every other restructuring that's 628 00:39:44,719 --> 00:39:48,480 Speaker 1: been in the last hundred years, and it went very smoothly, 629 00:39:48,560 --> 00:39:52,319 Speaker 1: everyone agreed, no one sued. But it could have been more. 630 00:39:52,480 --> 00:39:54,880 Speaker 1: It could have been a way to actually create a 631 00:39:54,880 --> 00:39:59,919 Speaker 1: new restructuring mechanism or bankruptcy court to settle these things 632 00:40:00,000 --> 00:40:02,640 Speaker 1: going forward. And it was a unique opportunity in let 633 00:40:04,080 --> 00:40:07,560 Speaker 1: is it weird that, I mean a lot of this debt, 634 00:40:07,640 --> 00:40:10,240 Speaker 1: as your paper points out, was incurred in the nineteen 635 00:40:10,280 --> 00:40:14,560 Speaker 1: eighties when Iraq was fighting against Iran with the support 636 00:40:15,360 --> 00:40:18,920 Speaker 1: of a lot of it's creditors who were actually giving 637 00:40:18,920 --> 00:40:21,600 Speaker 1: it money in order to do this, And then I 638 00:40:21,640 --> 00:40:26,120 Speaker 1: guess twenty years later, those same creditors are suddenly talking 639 00:40:26,160 --> 00:40:30,560 Speaker 1: about that debt as odious debt. Is it weird to 640 00:40:30,680 --> 00:40:33,520 Speaker 1: see that sort of progression in the way people were 641 00:40:33,640 --> 00:40:36,480 Speaker 1: thinking about that money. I think it's a little bit 642 00:40:36,560 --> 00:40:41,040 Speaker 1: like your politics. People used to be your enemies, they 643 00:40:41,080 --> 00:40:43,800 Speaker 1: are now your friends, and then they can become enemies. 644 00:40:44,600 --> 00:40:47,440 Speaker 1: And a lot of the money was really thrown after 645 00:40:47,480 --> 00:40:50,719 Speaker 1: Iraq because there was plenty to go around, and the 646 00:40:50,719 --> 00:40:57,600 Speaker 1: whole idea about supporting satellite states or allied to do 647 00:40:57,800 --> 00:41:00,640 Speaker 1: proxy wars in the Middle East was just fairly normal 648 00:41:00,760 --> 00:41:03,440 Speaker 1: and I mean to an extent, many of the issues 649 00:41:03,520 --> 00:41:07,960 Speaker 1: that we have here that are you know, shown especially 650 00:41:08,000 --> 00:41:11,040 Speaker 1: in the early years I'll fill with us. So you know, 651 00:41:11,600 --> 00:41:14,640 Speaker 1: Iran and Iraq are in the news today. A lot 652 00:41:14,640 --> 00:41:17,799 Speaker 1: of the issues were not really resolved in any way. 653 00:41:18,280 --> 00:41:21,920 Speaker 1: The old debt was restructured into new debt, but they 654 00:41:22,080 --> 00:41:27,480 Speaker 1: underlying political and religious and power struggles really dis continued. 655 00:41:27,600 --> 00:41:31,440 Speaker 1: So in that sense, probably not so. One of the 656 00:41:31,520 --> 00:41:35,919 Speaker 1: questions that always arises when you have a sovereign debt restructuring, 657 00:41:36,360 --> 00:41:39,480 Speaker 1: and particularly in more contentious ones where you have some 658 00:41:39,560 --> 00:41:43,239 Speaker 1: creditor tried to get money, is like, well, in the end, 659 00:41:43,280 --> 00:41:45,839 Speaker 1: like how do you really get a government to pay 660 00:41:45,960 --> 00:41:49,040 Speaker 1: money their sovereign country. They could do whatever they want. 661 00:41:49,400 --> 00:41:54,640 Speaker 1: International law is sort of a weak, nebulous concept at 662 00:41:54,680 --> 00:41:57,640 Speaker 1: best in many cases though, Like say, what we've seen 663 00:41:57,680 --> 00:42:01,440 Speaker 1: with Argentina is that the money is raised initially or 664 00:42:01,480 --> 00:42:05,360 Speaker 1: the bonds are sold through major financial centers, so maybe 665 00:42:05,360 --> 00:42:08,719 Speaker 1: through New York or through London. It doesn't sound like 666 00:42:08,800 --> 00:42:11,879 Speaker 1: that was the case in uh in the Rock, where 667 00:42:12,640 --> 00:42:14,800 Speaker 1: a lot of this debt was just incurred by laterally 668 00:42:14,840 --> 00:42:18,080 Speaker 1: through different states or the CIA or whoever. But talk 669 00:42:18,160 --> 00:42:23,000 Speaker 1: to us about the difference interest structuring when the if 670 00:42:23,040 --> 00:42:27,000 Speaker 1: the debt was incurred through some major financial center with 671 00:42:27,040 --> 00:42:31,439 Speaker 1: a sort of more robust legal framework for settling this stuff. Yeah. 672 00:42:31,440 --> 00:42:33,560 Speaker 1: So one of the one of the main or the 673 00:42:33,640 --> 00:42:37,400 Speaker 1: main difference between owing money to a sovereign versus to 674 00:42:37,520 --> 00:42:40,399 Speaker 1: a corporation is that if you owe money to a 675 00:42:40,400 --> 00:42:43,200 Speaker 1: corporation or a household, there is a bankruptcy chord, you 676 00:42:43,200 --> 00:42:45,200 Speaker 1: can take them to cold, you have remedies, you know, 677 00:42:45,920 --> 00:42:47,759 Speaker 1: there is a there is a way to actually get 678 00:42:47,760 --> 00:42:51,160 Speaker 1: the money, whereas Summer states, it doesn't really work like that. 679 00:42:51,680 --> 00:42:55,759 Speaker 1: In the last two hundred years or really before that. 680 00:42:56,280 --> 00:42:58,840 Speaker 1: The idea that you sent in the gunboats was that 681 00:42:59,239 --> 00:43:02,120 Speaker 1: you saw times just had to force people to pay, 682 00:43:02,160 --> 00:43:06,600 Speaker 1: and there really isn't a way to force sovereigns to pay, 683 00:43:06,680 --> 00:43:10,040 Speaker 1: or at least historically there hasn't been. So why do 684 00:43:10,160 --> 00:43:14,560 Speaker 1: sovereigns pay interest undebt. Well, it really comes down to 685 00:43:14,800 --> 00:43:18,719 Speaker 1: mainly one or two things. One is reputation, And by reputation, 686 00:43:18,760 --> 00:43:21,200 Speaker 1: I mean it's nice to be able to smooth your 687 00:43:21,200 --> 00:43:23,960 Speaker 1: consumption or borrow money if you need to buy something, 688 00:43:24,400 --> 00:43:28,520 Speaker 1: and if you don't pay your credits as well. The 689 00:43:28,600 --> 00:43:30,520 Speaker 1: chance that they're going to lend you money next time 690 00:43:31,000 --> 00:43:33,480 Speaker 1: is probably a lot smaller one. So countries just do 691 00:43:33,600 --> 00:43:36,400 Speaker 1: it out of self interest because it's a lot easier 692 00:43:36,440 --> 00:43:39,520 Speaker 1: to pay the interest on your debt knowing that you 693 00:43:39,560 --> 00:43:41,480 Speaker 1: can go to the market again. So this is sort 694 00:43:41,520 --> 00:43:48,280 Speaker 1: of the reputational idea. Second, theary sanctions, so historical analogy 695 00:43:48,320 --> 00:43:50,440 Speaker 1: would be that you're put in debt at prison, but 696 00:43:50,719 --> 00:43:55,279 Speaker 1: you could also just be forced so in the it's 697 00:43:55,320 --> 00:43:58,240 Speaker 1: just a matter of raw power often where one country 698 00:43:58,320 --> 00:44:02,120 Speaker 1: forced another one to pay. All this really changed in 699 00:44:02,160 --> 00:44:05,560 Speaker 1: the last shall would say thirty forty years with the 700 00:44:05,640 --> 00:44:08,880 Speaker 1: rise of financial centers. So in New York, in Hong Kong, 701 00:44:08,960 --> 00:44:12,080 Speaker 1: in London, most money flows through one way or the other. 702 00:44:12,320 --> 00:44:15,240 Speaker 1: So if all of the sudden, the laws of London 703 00:44:15,480 --> 00:44:19,520 Speaker 1: or English law or New York law suggests that if 704 00:44:19,560 --> 00:44:21,839 Speaker 1: your money touches New York, you have to abu by 705 00:44:21,880 --> 00:44:25,239 Speaker 1: certain rules, which means that you can have cases like 706 00:44:25,480 --> 00:44:29,120 Speaker 1: Argentina where even though none of the creditors or the 707 00:44:29,200 --> 00:44:33,000 Speaker 1: debtor were really in New York, the judge in the 708 00:44:33,040 --> 00:44:35,520 Speaker 1: case sat in New York. It could really say yes, 709 00:44:35,600 --> 00:44:38,200 Speaker 1: but all money flows through here at some point and 710 00:44:38,239 --> 00:44:40,479 Speaker 1: I'm going to slab motions on it if it does, 711 00:44:40,560 --> 00:44:44,759 Speaker 1: which means that the creditors do have certain remedies to 712 00:44:44,800 --> 00:44:48,040 Speaker 1: all the sudden force countries to pay. Obviously, they were 713 00:44:48,040 --> 00:44:51,759 Speaker 1: circumvented in Iraq, which makes this unique compared to some 714 00:44:51,880 --> 00:44:55,120 Speaker 1: of the more different cases that we have and mix 715 00:44:55,200 --> 00:44:57,520 Speaker 1: it maybe not a good template, but at least good 716 00:44:57,560 --> 00:45:01,360 Speaker 1: inspiration for some of the cases that we will see 717 00:45:01,400 --> 00:45:05,560 Speaker 1: I think going forward shortly, so two obvious countries that 718 00:45:05,640 --> 00:45:10,040 Speaker 1: have issues sort of similar. It's one Venezuela, which is 719 00:45:10,080 --> 00:45:15,280 Speaker 1: obviously insolvent and has lots of assets abroad, oil assets 720 00:45:15,280 --> 00:45:18,520 Speaker 1: both in the US direct with their oil company, but 721 00:45:18,640 --> 00:45:20,840 Speaker 1: also just oil assets abroad, and they're going to have 722 00:45:20,880 --> 00:45:24,399 Speaker 1: to find a way to restructure their debt and make 723 00:45:24,440 --> 00:45:27,520 Speaker 1: sure that they don't end up having the same issues. 724 00:45:28,000 --> 00:45:31,080 Speaker 1: The other one is Lebanon, which has a lot of 725 00:45:31,080 --> 00:45:33,719 Speaker 1: that which is both foreign and domestic, and they have 726 00:45:34,280 --> 00:45:37,520 Speaker 1: a dollar peck currency. I know you have Paul McNamara 727 00:45:37,640 --> 00:45:41,160 Speaker 1: on to talk about Lebanon a couple of weeks a 728 00:45:41,160 --> 00:45:44,879 Speaker 1: month ago, suggesting all the various issues, and they come 729 00:45:44,880 --> 00:45:48,480 Speaker 1: from the same idea that you need to find a 730 00:45:48,520 --> 00:45:51,920 Speaker 1: way to make sure that the restructuring actually works and 731 00:45:52,000 --> 00:45:54,680 Speaker 1: you don't get entangled in all the legal issues that 732 00:45:54,760 --> 00:45:58,839 Speaker 1: can that can come afterwards. So in the process of 733 00:45:58,880 --> 00:46:02,560 Speaker 1: doing your research, did you come across any like interesting 734 00:46:02,800 --> 00:46:07,600 Speaker 1: um instances or anecdotes about the commercial creditors. One of 735 00:46:07,600 --> 00:46:10,800 Speaker 1: the things is that the lawyers looked at precedents of 736 00:46:11,400 --> 00:46:14,080 Speaker 1: how do you actually find out whose owed money on 737 00:46:14,120 --> 00:46:17,640 Speaker 1: the commercial side. So I found out that the commercial 738 00:46:17,680 --> 00:46:21,319 Speaker 1: credit doors range from the big banks and there were 739 00:46:21,320 --> 00:46:23,920 Speaker 1: many European banks owed money like we talked about before, 740 00:46:23,960 --> 00:46:27,359 Speaker 1: but also just lots of trade credits and people owed 741 00:46:27,440 --> 00:46:32,080 Speaker 1: money for small things like uh export delivered just before 742 00:46:32,120 --> 00:46:36,240 Speaker 1: the sanctions. And they did struggle about how to actually 743 00:46:36,280 --> 00:46:39,040 Speaker 1: do it. So one of the things that they've been 744 00:46:39,640 --> 00:46:42,399 Speaker 1: talking about was how not to do it. So one 745 00:46:42,440 --> 00:46:48,720 Speaker 1: and one story is that in Nigeria ordered sixteen million 746 00:46:48,800 --> 00:46:52,400 Speaker 1: tons of cements to arrive within a ship within a 747 00:46:52,480 --> 00:46:55,320 Speaker 1: year for their harbor or for their to to plug 748 00:46:55,360 --> 00:46:59,400 Speaker 1: a shortage. They hadn't really made the calculation correctly, so 749 00:46:59,480 --> 00:47:03,720 Speaker 1: it was far in excess of what they actually needed 750 00:47:03,760 --> 00:47:08,719 Speaker 1: to needed to receive. The result was a run up 751 00:47:08,719 --> 00:47:11,160 Speaker 1: and trade debt that needed to be settled, and the 752 00:47:11,200 --> 00:47:14,720 Speaker 1: government took out a newspaper ad asking anyone owed money 753 00:47:14,760 --> 00:47:19,120 Speaker 1: to contact them. Now, obviously a lot of people contacted them, 754 00:47:19,480 --> 00:47:24,360 Speaker 1: and Nigeria was inundated with claims and it really entangled 755 00:47:24,760 --> 00:47:28,680 Speaker 1: the debt reconcilia. It really was a debt reconciliation nightmare, 756 00:47:29,000 --> 00:47:31,520 Speaker 1: and it ended up settling only one third of the claim. 757 00:47:31,600 --> 00:47:36,959 Speaker 1: So in the commercial settlement or reconciliation reconciliation and part 758 00:47:36,960 --> 00:47:40,440 Speaker 1: of the restructuring, they set out some very formal rules 759 00:47:40,520 --> 00:47:43,960 Speaker 1: of how could you actually deliver a claim to make 760 00:47:44,000 --> 00:47:46,920 Speaker 1: sure that you don't end up with just taking ads 761 00:47:46,920 --> 00:47:50,160 Speaker 1: out in newspapers hoping that anyone could just say, Hey, 762 00:47:50,239 --> 00:47:54,239 Speaker 1: I have hot money. I love that. It's it's sort 763 00:47:54,280 --> 00:47:57,359 Speaker 1: of the complete opposite to the normal situation to have 764 00:47:57,560 --> 00:48:01,439 Speaker 1: request for money actually flowing into Sigeria rather than out 765 00:48:01,440 --> 00:48:04,000 Speaker 1: of it. I know, I wonder if that's the original 766 00:48:04,840 --> 00:48:10,800 Speaker 1: idea for the Nigerian Prince Nigerian Princess. Yeah, okay, Well, 767 00:48:10,880 --> 00:48:15,359 Speaker 1: so a really fascinating saga of debt restructuring and one 768 00:48:15,440 --> 00:48:18,440 Speaker 1: that could hold clues as to the future paths of 769 00:48:18,520 --> 00:48:22,440 Speaker 1: two emerging markets that are possibly on the brink of 770 00:48:22,520 --> 00:48:26,120 Speaker 1: deep fault. Simon Hendrickson, Thank you so much for coming on, 771 00:48:26,680 --> 00:48:30,000 Speaker 1: Thank you for having me. Thanks Simon. That was great, 772 00:48:42,120 --> 00:48:46,040 Speaker 1: So Joe I really enjoyed that conversation. Brings together, of course, 773 00:48:46,080 --> 00:48:48,520 Speaker 1: a lot of the themes that we've discussed on previous 774 00:48:48,560 --> 00:48:52,680 Speaker 1: All Thoughts episodes, but it seems especially relevant in the 775 00:48:52,760 --> 00:48:56,960 Speaker 1: context of what's going on in Venezuela but also Lebanon. 776 00:48:57,120 --> 00:49:00,520 Speaker 1: So it's nice to think about the Iraq example, whether 777 00:49:00,600 --> 00:49:03,840 Speaker 1: or not it could be a blueprint for future restructurings, 778 00:49:03,920 --> 00:49:08,799 Speaker 1: or whether or not it was really an isolated special case. Yeah, 779 00:49:08,840 --> 00:49:11,480 Speaker 1: I mean, there are certainly aspects of it that feel 780 00:49:11,600 --> 00:49:15,680 Speaker 1: extremely isolated. The fact that so much of the debt 781 00:49:15,800 --> 00:49:19,719 Speaker 1: was sort of two official UH entities like other governments 782 00:49:19,760 --> 00:49:25,440 Speaker 1: that didn't have particularly uh much reason to extract a 783 00:49:25,560 --> 00:49:27,640 Speaker 1: high price you have to figure out be difficult. We 784 00:49:27,680 --> 00:49:30,920 Speaker 1: know there's a lot of UH dead held in countries 785 00:49:30,920 --> 00:49:34,919 Speaker 1: like Venezuela and Lebanon, where you know, there's like they're 786 00:49:34,920 --> 00:49:37,920 Speaker 1: held by a money manager that has to uh earn 787 00:49:38,040 --> 00:49:41,920 Speaker 1: some return or it has clients. But nonetheless sort of 788 00:49:42,120 --> 00:49:46,600 Speaker 1: a fascinating look at just the sort of unusual circumstances, 789 00:49:46,640 --> 00:49:49,200 Speaker 1: and we never really talked about the rocrat structuring at all, 790 00:49:49,200 --> 00:49:51,200 Speaker 1: which I guess is kind of the point of Simon 791 00:49:51,239 --> 00:49:55,520 Speaker 1: having done the research. Yeah, exactly do you think that 792 00:49:55,560 --> 00:49:59,040 Speaker 1: odiousta is ever going to get enshrined as a legal concept? 793 00:50:00,160 --> 00:50:03,759 Speaker 1: I mean, the problem is there's inherently going to be 794 00:50:03,800 --> 00:50:07,680 Speaker 1: an element of subjectivity, right, how much is the leader 795 00:50:07,760 --> 00:50:10,480 Speaker 1: really representing the will of the people? How much was 796 00:50:10,520 --> 00:50:12,880 Speaker 1: it for the benefit of the people, the spenditure of 797 00:50:12,960 --> 00:50:17,080 Speaker 1: the debt that was incurred. It obviously makes a certain 798 00:50:17,080 --> 00:50:19,800 Speaker 1: amount of moral or logical sense that yeah, why should 799 00:50:19,840 --> 00:50:23,040 Speaker 1: people who are born today have to or you know, 800 00:50:23,480 --> 00:50:26,719 Speaker 1: deal with the debts incurred by a past dictator. But 801 00:50:26,800 --> 00:50:29,319 Speaker 1: it seems so hard to imagine there will ever be 802 00:50:29,320 --> 00:50:32,120 Speaker 1: a point when people say, okay, yeah, you get to 803 00:50:32,160 --> 00:50:36,640 Speaker 1: write this off because of the Pandora's box that Simon described. 804 00:50:37,560 --> 00:50:42,120 Speaker 1: What do you think, um, what do I think? I think, Well, 805 00:50:42,200 --> 00:50:43,640 Speaker 1: this is sort of what I was getting with that 806 00:50:43,760 --> 00:50:46,400 Speaker 1: question about how come all the debt incurred in the 807 00:50:46,480 --> 00:50:49,920 Speaker 1: nineteen eighties was okay as long as Iraq was seen 808 00:50:50,040 --> 00:50:52,800 Speaker 1: as beneficial to the international community in the sense that 809 00:50:52,840 --> 00:50:56,000 Speaker 1: it was fighting against Irany and hedgemony. But then suddenly 810 00:50:56,120 --> 00:50:59,520 Speaker 1: after it invaded Kuwait, and it became very very clear 811 00:50:59,560 --> 00:51:03,560 Speaker 1: that Hussein was a bad guy. Suddenly that same money 812 00:51:03,760 --> 00:51:08,200 Speaker 1: can be considered possibly odious. So you sort of have 813 00:51:08,360 --> 00:51:12,600 Speaker 1: this fluidity of debt, right Like, debt can exist for many, 814 00:51:12,680 --> 00:51:16,720 Speaker 1: many decades, and in that period of time, the reasons 815 00:51:16,800 --> 00:51:21,600 Speaker 1: it exists can change, and they can switch from possibly 816 00:51:21,640 --> 00:51:26,200 Speaker 1: moral to possibly immoral. It does seem like it must 817 00:51:26,200 --> 00:51:29,160 Speaker 1: be one of the most complicated concepts in all of 818 00:51:29,280 --> 00:51:33,400 Speaker 1: international finance. The idea of actually defining odious debt and 819 00:51:33,480 --> 00:51:37,439 Speaker 1: actually trying to put it into law, I can't even imagine. Yeah, 820 00:51:37,480 --> 00:51:41,120 Speaker 1: and I think that's what makes even current debt restructurings 821 00:51:41,239 --> 00:51:44,920 Speaker 1: so interesting to watch. So set aside the moral question, 822 00:51:45,320 --> 00:51:49,040 Speaker 1: they're just so complicated because the legal frameworks are unclear. 823 00:51:49,520 --> 00:51:54,600 Speaker 1: The moral questions about extracting real resources from an economy 824 00:51:54,640 --> 00:51:57,400 Speaker 1: that's obviously distressed in the first place, because otherwise it 825 00:51:57,400 --> 00:52:01,319 Speaker 1: probably wouldn't be in this situation very interesting. Uh. I 826 00:52:01,360 --> 00:52:04,880 Speaker 1: think that is partly why you know these will always 827 00:52:04,960 --> 00:52:10,200 Speaker 1: be inherently complicated. Yeah, but again, we might actually have 828 00:52:10,440 --> 00:52:13,520 Speaker 1: a chance, I guess, to revisit the odious det concept 829 00:52:13,680 --> 00:52:17,319 Speaker 1: um when uh, well, in the context of Venezuela, So 830 00:52:17,440 --> 00:52:20,440 Speaker 1: that'll be an interesting one to watch. Absolutely, should we 831 00:52:20,520 --> 00:52:24,200 Speaker 1: leave it there? Let's leave it there quote. This has 832 00:52:24,239 --> 00:52:28,000 Speaker 1: been another episode of the Odd Thoughts Podcast. I'm Tracy Alloway. 833 00:52:28,120 --> 00:52:31,239 Speaker 1: You can follow me on Twitter at Tracy Alloway and 834 00:52:31,280 --> 00:52:33,200 Speaker 1: I'm Joe Why is It Thal? You could follow me 835 00:52:33,280 --> 00:52:36,400 Speaker 1: on Twitter at the Stalwart and be sure to follow 836 00:52:36,440 --> 00:52:39,879 Speaker 1: our guests on Twitter. Simon Hendrickson. His handle is at 837 00:52:40,239 --> 00:52:44,360 Speaker 1: Simon h Underscore d K, and be sure to follow 838 00:52:44,360 --> 00:52:48,239 Speaker 1: our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. 839 00:52:48,680 --> 00:52:52,360 Speaker 1: Followed Francesca Levia, the Bloomberg head of Podcasts, at Francesca 840 00:52:52,440 --> 00:52:56,000 Speaker 1: Today and check out the whole family of Bloomberg podcasts 841 00:52:56,040 --> 00:53:16,960 Speaker 1: on Twitter under the handle at podcasts. Thanks for sing