Ep 118 ft. Alexandra Zeitz & Lauren Ferry
Clauses & Controversies
Limitations and Changes in Sovereign Debt Architecture
Discussion on the limitations of research, exclusion of COVID cases, rapid response of funds to pandemic, changes in debt negotiations, and importance of external actors in sovereign debt architecture.
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Speaker 3
So I guess one quick clarification
Speaker 2
point, which is that in the paper, we only look at cases up to the COVID pandemic. So we don't include this most recent. Whoops, I'm so sorry.
Speaker 3
So totally fine. We can talk about this because I think they're really interesting. But part of the reason was because they are, we think there are idiosyncratic things going on. I mean, in part, in terms of the relationship with the fund, like the fund handed
Speaker 2
out countries to 86 programs, 86 countries in a very rapid fire way to respond to the pandemic. And countries face sort of really heightened debt distress, plus then you get the debt service suspension initiative and the common framework. And so in some ways, the
Speaker 3
architecture is starting to change in this in these last two, two to three years
Speaker 2
in a way that makes it difficult to compare to the earlier period. And in the earlier period, you know, in terms of other things that might be causing difficulties for borrowing countries, and that might explain why IMF negotiations are especially difficult. You know, we include, in our models, we control for attributes of borrowing countries that might make their negotiations with the IMF
Speaker 3
more difficult in general. So whether they're more indebted at all,
Speaker 2
especially whether short term debt is a larger part of their exposure, we don't
Speaker 3
look at this local
Speaker 2
currency, a local bond market, you know,
Speaker 3
sort of phenomenon more generally or in particular.
Speaker 2
One, and this is a sort of unsatisfying way because it doesn't get at the substance of the question is we we account for the fact that over time negotiations have actually gotten quicker. The fund has gotten quicker over time at this. And so we sort of strip out some of the variation that comes from that. But I think in general, this question about how the sovereign debt architecture, which has for a long time, presumed basically that the most important external actors are those borrowing those active in the external
Speaker 3
market and
Speaker 2
foreign currency debt.
China’s Impact on Sovereign Debt Restructurings
There has been much chatter (a lot of it out of Washington) about how China is mucking up the financial architecture for sovereign debt restructurings. Given the political and strategic biases of much of the chatter, it is often hard to separate out real claims from bullshit. Political scientists, Lauren Ferry and Alexandra Zeitz, in their paper, “China, the IMF, and Sovereign Debt Crises”, have dug into the question. Using both qualitative and quantitative data, they document and describe how the debt negotiation processes for distressed countries with the IMF has materially changed in the wake of China’s emergence as a major lender. In the podcast, we discuss, among other things, the general question of China’s impact on the debt restructuring processes today, the measures they use in their analyses, and what is likely to happen in the foreseeable future.
Producer: Leanna Doty
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