Clauses & Controversies

The New, New Syndicated Lending In the 1970s and 1980s, most sovereign lending took the form of syndicated bank loans. This changed after the 1980s debt crisis and the Brady plan, so that in from the 1990s on, sovereign bond markets have supplied most emerging market borrowing needs. For the last 10-15 years, even very poor countries have tapped the bond markets. Syndicated loans still exist, of course, but are rarely used for general budgetary purposes. Although over-simplified, that’s a fairly standard way to view modern sovereign borrowing. Only it turns out that it may be no longer true. Tightening global financial conditions have caused lots of countries to turn to syndicated loans. We had a general understanding that this was true, but had no idea of the scope until a recent article by our guest, Chelsey Dulaney of the Wall Street Journal. She joins us to talk about how low-income countries are increasingly relying on syndicated bank loans and about the potential risks. Producer: Leanna Doty

The Louisiana Purchase and the Origins of the Sovereign Bond Market Most of us learn the story of the Louisiana Purchase as one where the key players were the political leaders, namely, Thomas Jefferson and Napoleon Bonaparte. While they were undoubtedly key, economic historian Larry Neal suggests that this transaction would probably never have occurred but for the financial creativity of a set of largely unknown bankers in London and Amsterdam who, along the way, set the foundations for the modern international sovereign bond market. Producer: Leanna Doty

What will the Price of Peace with Putin be? Reparations, war debts, post-war reconstruction, controlling inflation through interest rates . . . The topics at the top of the news feed today, thanks at least in part to the actions of an autocratic European leader in engaging in an unprovoked invasion of a neighbor, invoke so many of the issues that John Maynard Keynes wrestled with almost a century ago. To talk about Keynes’ relevance to us today, and particularly in the context of the Ukraine-Russia situation, we are joined by Zach Carter, the author of the best selling book about Keynes and Keynesian ideas, The Price of Peace. That question of what price the world is willing to pay for peace with Mr. Putin is front and center as the conflict in Ukraine gets bloodier and more brutal by the day. Producer: Leanna Doty

Has There Really Been a Russian Default? The 30-day grace period recently expired on Russian bond payments due in May, and the Russian government also failed to make a late-June payment deadline on other bonds. That's a default, right? We keep getting asked that question, and we keep answering something like: "Yes. Almost certainly. It probably is almost definitely a default." And then we get strange looks. Do the sanctions imposed by the U.S. and other countries really prevent bondholders from receiving payment? Does a bondholder who opens an account to receive rubles violate the sanctions? If the answer is no, does giving bondholders this option mean Russia hasn't defaulted? If the answer is yes, do the sanctions let Russia off the hook, giving it a defense -- impossibility -- to bondholder lawsuits? And what's the point of all these sanctions anyway? We tackle these and other questions. Producer: Leanna Doty

What's With the Lawsuit Against Sri Lanka? Normally, holdouts keep a low profile until after a sovereign restructures its debt. For one thing, the government might not be able to pay them until after other creditors agree to reduce their claims. For another, getting a judgment quickly isn't a good strategy, since it takes a long time to collect and the post-judgment interest rate is so low. But Sri Lanka was just sued by a large holder of its bond that matures in July of this year. And the lawsuit asks not just for money damages, but for a pari passu injunction that would effectively block any restructuring from going forward. What gives? Has Sri Lanka stupidly bumbled its way into legal trouble? (Well, sort of... the government hasn't exactly played its cards right.) Or is this just a negotiating ploy? No guest this week. Producer: Leanna Doty

Argentina’s Never-Ending GDP Warrant Saga Academics have long been fans of GDP indexed instruments as a means of smoothing out economic shocks that a sovereign might suffer. The market, however, has not yet shown much enthusiasm for these creatures. For academics, who frequently like to think that the markets are just too slow to understand their ideas, it is tempting to conclude that this is a case of “if we build it, they will come”. Argentina’s experience with its GDP warrants, however, might urge caution. Our guest is Vladimir Werning (formerly of the Argentine ministry of finance and JP Morgan) and one of the most of the most thoughtful participants in the markets. Producer: Leanna Doty

The Value of Building a Reputation for Repaying Debts: Overstated? A foundational question about sovereign debt markets is why, given the difficulty of enforcing against a sovereign, do sovereigns ever repay? The answer most often given is reputation. Sovereigns repay because they want to borrow again in the future. And this belief in the immense long term benefits of repaying has become an article of faith for many in the business. But how does this belief hold up against the empirics? Or, as our guests on this episode – Paolo Manasse, Matilde Faralli and Ugo Panizza -- put it in a recent article (written with Francesa Caselli): What are the long term benefits of repaying when everyone else is defaulting? Their example is Columbia, widely thought to be the only large Latin American country that did not default during the 1980s. They find that Columbia benefited in the short and medium term from avoiding explicit default, but the benefit did not last the long term. Producer: Leanna Doty

Gunboats, Marines and Bonds: The Ugly US Occupation of Haiti 1915-34 The historical tie between debt and gunboat diplomacy is ugly, rooted in imperialist and racist encounters with western powers. Few examples better illustrate the point than Haiti. In the first decades of the 20th century, Haiti was still repaying the enormous debt imposed by France as a condition of recognizing the new Haitian state nearly a century earlier. Then the U.S. marines arrived. Laurent Dubois (University of Virginia) is a leading historian on Haitian colonial history and joins us to talk about the U.S. incursions into Haiti, beginning in 1914 when the marines spirited away the country's gold reserves in the dead of night for “safekeeping.” In the course of occupying Haiti, and effectively putting the country into receivership, the U.S. engineered still more lending, designed both to protect U.S. commercial interests and to reduce the influence of European investors. Producer: Leanna Doty

The Unprecedented and Odious Haitian Independence Debt Several prior episodes have explored aspects of the history of the Haitian Independence Debt of 1825, in which Haitians were effectively required to pay to pay reparations to the French for winning their own freedom. The burden of this debt persisted for more than a century, and the economic effects are still felt today. Marlene Daut (Virginia) is a specialist in Caribbean, African American, and French colonial literary and historical studies. She joins us to more fully explore the history, including how France, the United States, and other powerful states worked to ensure that the debt was repaid. Producer: Leanna Doty

Can Borrowing Costs for Tribes be Reduced? Tribal governments operate under borrowing restrictions that seem quite onerous. For example, they are limited in their ability to issue tax exempt bonds. Meanwhile, borrowing costs for tribal governments and tribal entities like casinos seem higher than warranted, at least in comparison to non-tribal counterparts. One explanation we have heard invokes legal uncertainty--for instance, about the scope and effect of a tribal government's waiver of sovereign immunity, the potential role of the federal government in a case of debt distress, and the availability of federal bankruptcy proceedings. Our guest is Kevin Washburn, Dean of Iowa Law and a leading expert in federal Indian law and the law of gaming. He joins us to talk about the relationship between the federal government and tribal nations and about ways to improve access to capital for tribal governments. Producer: Leanna Doty