Clauses & Controversies

What Motivates China's Overseas Lending? Including lending by state owned enterprises, China appears to be the world’s biggest official creditor. Critics emphasize its lack of loan transparency. Some accuse China of using loans as tools to gain political or even territorial control. Are such criticisms fair? And what really motivates China's overseas lending. Pippa Morgan (Duke Kunshan)is a specialist in the political economy of China's foreign economic relations and joins us to talk about these questions. Producer: Leanna Doty

Do Investors Care About Odious Debts? The Tsarist Russian government used borrowed funds to repress domestic political movements. Vichy France borrowed while collaborating with the Nazis. King Leopold used borrowed funds to engage in horrific exploitation and repression in the Congo Free State, and these debts were later assumed by Belgium. There are nearly endless examples of truly odious sovereign debts. Do investors care about any of this? And if so, why? Our guest Kim Oosterlinck (Universite Libre de Bruxelles; Solvay Brussels School of Econ. & Mgmt.) is perhaps the foremost expert on such questions. We talk with Kim about odious debt, with a sidebar on efforts to recover looted art. Producer: Leanna Doty

Haiti’s Odious "Independence Debt" In 1825, France imposed on Haiti an indemnity obligation of 150 million francs, ostensibly to compensate French plantation owners for Haitians having fought for and won their freedom in the revolution two decades prior. Haiti assumed this vast debt with French gunboats lurking just offshore, and all parties understood that it could not be repaid without massive borrowing from French (and later U.S.) banks. It would be well into the 20th century before Haiti retired these debts. The Haitian independence debt was odious and unjust. But was it illegal at the time? And if so, does Haiti have an avenue to recover from France? We discuss these questions, and legal history more generally, with legal historian Julia Rudolph of North Carolina State University. Producer: Leanna Doty

Debt expert Lee Buchheit, economist Joyce Chang, and contingent debt specialist Jeromin Zettelmeyer discuss GDP-linked bonds, the COVID codicil as a solution to debt relief, challenges of state contingent debt instruments, efficacy of value recovery instruments, bond clauses, IMF's role in debt restructuring, concerns about sovereign debt markets, and logistics of COVID-19 vaccine distribution in emerging markets.

Restructuring Uncle Sam's Debt All together now (in a smarmy drawl): "Families must balance their budget, why not countries?" Okay, that's a stupid thing to say (although politicians love to say it). It's especially stupid to say about rich countries that borrow in their own currency. But this doesn't mean these countries can't or won't default, as the United States itself has demonstrated. We talk with Julia Mahoney and Ed Kitch (Virginia), whose recent article (link below) covers the history of U.S. debt default and argues provocatively that a debt restructuring might be needed, perhaps surprisingly soon. And no, the 14th Amendment doesn't prohibit this. Julia and Ed explain why. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3492085 Producer: Leanna Doty

Best Crisis Management in HISTORY! Felix Salmon (Axios; Slate Money) knows more about financial markets than pretty much anyone we know. He joins us to talk about the U.S. government's engagement (or lack thereof) with debt issues in emerging markets and with multilateral institutions like the IMF. Will things be different under a Biden administration? Also: what just happened with that lawsuit against Guatemala?

Trees. Wrong. Barking Up. Jeromin Zettelmeyer has done foundational research on the economics and the law of sovereign debt. We discuss the G-20's "Common Framework," recently released to lay out a mechanism for coordinating debt relief to poor nations. Jeromin explains why Mitu and Mark are critical of the wrong aspects of the Common Framework and highlights the significance of the G-20's announcement. Producer: Leanna Doty

A View From the Sell Side Our guest Siobhan Morden is one of the most respected and widely-read sell-side analysts in the sovereign debt markets. We ask Siobhan about the process of assessing country risk and for insight about what to expect given the continuing economic fallout of the pandemic. Producer: Leanna Doty

Yannis Manuelides, a renowned sovereign debt lawyer, discusses the reluctance of governments to use GDP-linked bonds. He compares drafting practices in London and New York and critiques the 'common framework' for handling the Covid-induced debt crisis. The podcast explores debt deferral complexities, the role of private sector incentives, and the challenges of restructuring mechanisms in the Eurozone.

Judgments 1, CACs 0 If a bondholder sues and gets a judgment before a sovereign can restructure its debt, does the bondholder escape the restructuring? If so, will countries like Venezuela--which can't restructure any time soon and is increasingly a target of litigation in U.S. courts--be left without restructuring tools? Federal courts guru Andy Hessick (UNC Law) patiently explains why a restructuring vote under a collective action clause has no effect on a judgment. But governments needn't worry. There are plenty of other tools at their disposal. Producer: Leanna Doty