Clauses & Controversies

What Do We Know About International Investment? What allows countries to borrow and to attract investment? Often the answer emphasizes the ability to make credible commitments, and this is often supposed to be easier for countries with democratic institutions. For some countries—often supposed to be those with weaker domestic institutions—agreeing to submit disputes to international investment arbitration is thought to be a way to make promises credible. Many in the civil society arena absolutely hate investment arbitration, thinking it is unfair to borrower countries. The rejoinder, of course, is that it is necessary to enable investment. As it turns out, we actually know relatively little about the factors that enable governments to make credible promises. Rachel Wellhausen (Texas) is one of the foremost experts in the political economy of international investment and finance. Her work spans the investment arbitration system, the relevance of the so-called “democratic advantage,” and other fundamental questions. She joins us to talk about the ability of governments to attract investment. Producer: Leanna Doty

Financial Contract Design Lachlan Burn and Jeff Golden, formerly of Linklaters and Allen & Overy, are two of the most respected lawyers in the capital markets world. Together and separately, they have been at the forefront of almost every effort over the past forty years to improve contract documentation and increase certainty in legal determination in financial transactions. In this episode, they talk with Mitu--Mark is away this week--about how contract production methods vary across jurisdictions (NY v. London, Common v. Civil Law, etc.) and the importance of institutional culture in organizations (e.g., ISDA, the FMLC) in which they have played key roles. Producer: Leanna Doty

Sovereign debt guru Layna Mosley discusses the key role of political philosophy in sovereign debt decisions. They explore reasons why political scientists study sovereign debt, the impact of elections and political institutions, and the influence of domestic politics on borrowing choices. The podcast also explores 'original sin' in developing countries' debt, determinants of government bond denomination, and the role of IMF and World Bank in the rise of local currency.

The Greek Restructuring of 2012 – Filling in the Gaps Greece’s restructuring of March 2012 was one of the biggest, deepest, and fastest in sovereign debt history. Much has been written about it already, but there are still significant gaps in our understanding of how matters played out on the ground. For example, how and why did the restructurers decide to move from a 75% vote requirement in each bond (the standard at the time) to a class voting mechanism (a bankruptcy model)? Were they not worried about legal risk? And what about the reversal of the threat to not pay a single cent to any holdouts? Sovereign debt guru Andrew Shutter, one of the architects of the 2012 Greek restructuring, joins us to talk about these and other questions. Producer: Leanna Doty

(Why) Are ESG Sovereign Bonds (Such) Scams? Environmental, social, and governance (ESG) investing is white hot. Investors are clamoring for "green" bonds, "blue" bonds, and other instruments that supposedly fund investments in socially beneficial activity. And borrowers are happy to meet the demand. Maybe too happy. Do sovereign issuers of green bonds and other ESG instruments actually promise to do anything at all with the proceeds? Would such promises be enforceable even if they were made? Color us skeptical. No guest this episode. We discuss the legal terms in sovereign green bonds... or rather, the lack of legal terms. Producer: Leanna Doty

Does a Good ESG Score Lower Sovereign Borrowing Costs, or Does Cheaper Credit Leave More Room to Do ESG? Lupin Rahman, senior economist at PIMCO, is one of the gurus of the sovereign debt market. She is one of the very few who can talk with deep knowledge about the details of the fine print in sovereign debt contracts, the macro context of debt markets, and the importance of various Official Sector initiatives. We ask her about all of those matters, starting with the new popularity of ESG investing, the benefits and costs of these green and social strategies for sovereigns and investors (a topic on which Lupin and her co authors have a fascinating new paper, https://jfi.pm-research.com/content/early/2021/05/01/jfi.2021.1.112.abstract ) and ending up with QE and inflation fears. Producer: Leanna Doty

What Does it Mean to Say the Treasury Market is Risk Free? The U.S. Treasury market is supposed to be boring and risk free. As a result, it is largely ignored in the literature on sovereign debt, other than being used as a measure of the risk free rate in empirical studies. Our guest on this episode, Yesha Yadav (Vanderbilt Law), disagrees. While it is true that the U.S. government is relatively unlikely to default in payment (although that hasn't stopped it from doing so on a couple of famous occasions in the past), Yesha explains that there in fact are a host of risks lurking beneath the calm surface of the U.S. Treasury market. Yesha is one of the foremost experts in financial and securities regulation and has written extensively about risks stemming from lightly-regulated high frequency trading and other sources. She joins us to talk about why it's a mistake to think of treasury markets as risk free, the pitfalls of debt buybacks, and other topics. Producer: Leanna Doty

The Sovereign Debt Acronym Show DSA, SDR, DSSI. Sovereign debt insiders love to throw acronyms around in conversation to make us outsiders feel like, well . . . outsiders. Even the non-acronyms aren't exactly self-explanatory. Who knew the Paris Club isn't really a night club where sovereign debt folks hang out at after work? Aitor Erce, superstar sovereign debt scholar and veteran of multiple key institutions in the international financial apparatus (Bank of Spain, ESM) joins us to discuss the history and contemporary relevance of these institutions and to offer some critiques of how they function. We also talk about proposals to increase IMF allocations of SDRs in response to the covid crisis. And while we have Aitor, we ask how all of these acronyms – SDRs, DSAs, etc. -- play into the G20's Common Framework. All in all, lots to talk about. We will need to have Aitor back.

Did External Finance Produce Weaker States? In the first era of bond finance (roughly 1820-1920), countries often pledged customs revenues and other collateral to back their external debt. Conventional wisdom is divided as to whether these pledges were worth anything. After all, investors couldn't seize the ports on their own, and rich countries were only sometimes willing to do it for them. Didac Queralt (Yale) has done fascinating work on the relationship between external finance and the development of state institutions. Among his surprising findings are that investors did assign value to collateral, suggesting that these pledges were more enforceable than is often assumed. But he also highlights the long-term costs. Access to external capital may have allowed states to defer the development of robust tax systems. In short, ability to tap external finance may have produced weaker and less democratic states. We talk with Didac about his research. Producer: Leanna Doty

Josefin Meyer, a young star in the sovereign debt world, discusses her research on investors in sovereign bonds. They explore the astonishing returns investors have received despite defaults, like those in Lebanon and Argentina. The conversation delves into current Covid-era sovereign bond yields, including negative yields for Greece.