Jay Newman on the Coming Crisis for Emerging Markets

among others, So there's a lot together. There's a lot that's been going on, right, And every time you see the US raise interest rates, you generally see some pain in emerging markets because the dollar goes up and the foreign currency payments that governments who have borrowed in the dollar have to pay those go up. And it just feels like at the moment, with everything that's going on.

And you mentioned the commodities boom, Normally a commodity the spoon would be great for emerging markets, but this time it seems to come with a lot of imported inflation. Yes, so this time it seems like a really toxic mix for m and like acute shortages. So you could have a commodities boom and it's like, Okay, there are a bunch of commodity producing countries seeing big, you know, cash increase in their imports or their their cash flows right now.

But you know, if you're a country that doesn't have much domestic food, or country that doesn't have much domestic wheat specifically, and there's a grain shortage, then you're it's is a very distressing time. Yeah, very toxic mix politically as well. And of course the other big thing that's going on is Russia, and we've had lots of people

expecting Russia to default on its bonds. That seems almost certain to happen now given that the U. S. Treasury has imposed even more restrictions on trading in the secondary market of the debt. They've also stopped investors from accepting bond payments from Russia. So it seems like a default is definitely going to happen, which means, of course that we need to talk about all of this means all right, without further ado, I am very pleased to say we

really have the perfect guest to discuss. We are going to be speaking with Jane Newman. He is a former portfolio manager at Elliott, very instrumental in Elliott's pursuit of Argentina. And all the drama that happened there. He's a sovereign debt specialist in general now turned novelist and his book is called Under Money. That's out now. Jay, welcome so much to the show. Tracy, thank you, and thank you, Joe,

thanks for coming up. So maybe, given your decades of experience and EM, maybe just to begin with, we could ask the big question, how bad is it right now for EM and what is the most striking historical analogy or parallel that you would compare it to. I think it's almost the perfect storm for EM. And the only real comparison I can draw is from the very beginning

of Third World debt crises, which is the eighties. Um the Foreign Sovereign Immunities Act was passed in nineteen seventy six, the Stateiumunities Act in England nineteen seventy seven, and then we saw a huge, huge volume of lending. It's the time when Walter Riston famously said to excuse lending to development countries, he said, countries don't go bankrupt, which is completely accurate and totally useless if you're a creditor. But what we saw there was a period in which something

like twenty five countries defaulted. UH. And what years this was in The faults started in the late seventies, but they extended into the eighties. UH. And they weren't resolved really into the nineties. UH. Of course the case of Argentina, which went on even longer. UM. But we're talking about a period that could be very, very stressful and distressing for developing country borrowers. Just going back, actually before we get too much on the present. Why did countries default?

They default because markets closed to them, And that's what typically happens. The initial defaults in Poland and in Mexico made lenders very nervous, and when it came time to roll over the debt, there was there were no takers. That's what's happening today. I mean, it's it's uh, it's almost an inedible process when when things are good and money is easy, people pile in and the underwriters find, you know, plenty of buyers, but all of a sudden,

when one country defaults. Let's take Lebanon, Let's take Sri Lanka, which you mentioned, Everyone says, WHOA, what about country X and country wine, country Z, And then they become nervous and then the debt can't get rolled, is it inevitable in the current situation. The investors start pushing back, and I mean the reason I ask is because how many times has Argentina default it? Now? And someone out there

is always buying the new bonds that it issues. It feels like people investors learn their lesson for you know, maybe a month, and then the next year they forget it again and people are buying em indiscriminately. It's it's um It is a complicated ecosystem, and it's it's rotation because what happens in the first instances that the buyers tend be real money buyers, retail investors through mutual funds

that are responding to advertisements. You've you've seen those ads in the in the paper which show past performance and they and they always show the best performing funds, and periodically those are emerging market funds, and that's when sales pick up and the the the mutual fund investor and buyer is driven by indices. So there's always a buyer. If the country's in the index, whether it's Argentina or Russia, those bonds have to get included and there that's why

they're bought. Then what happens is after default, they get puked and the more opportunistic investors like hedge funds come in and the cycle starts over again. You mentioned that quote in the beginning that countries don't go bankrupt, and as you say, it's maybe true, but completely irrelevant to an actual creditor of the country, whether they're gonna get paid back or not. Why do countries choose to default? I mean, in theory, you know country, a government has

certain choices it can make. It can cut back on domestic spending to prioritize lending. What are the conditions that tend to proceed a government making the choice, like, you know what, we're not going to We're what? Why does the why did they do that? It's uh so, so many, so many questions nestled and nested in what you just asked, Joe.

It's always political. Countries don't typically borrow with the intention of default, but on some level it's always in the back of the mind of a politician because they borrow to get money they can use for their own purposes, whatever those are, whether there for legitimate infrastructure and and building or corrupt purposes, which in many cases they are.

They they are, but it's a political decision. And when the it's only when the the money is cut off or threatened to be cut off, that political figures in borrowing countries decide that, well, maybe it's not worth the trouble is it is part of it, the idea that politicians are satisfying a domestic constituency, and so foreign investors kind of are a very easy demographic to just you know, leave out and say, well, we're going to screw over

the foreign investors in order to satisfy our population easier and easier for a variety of reasons. One you've mentioned, which is that markets have short memories, and that's certainly true. But the other pieces that when a country runs into trouble, the multilateral organizations all rally around it, and the actually

other governments rally around it. So if in the case of Sri Lanka is just a case in point, we're going to see we will see uh, the I m F and the World Bank and the Asian Development Bank and the G seven and the G twenty all saying, oh, poor Sri Lanka, not blaming Sri Lanka for for their problems, but looking for an opportunity to fleece foreign foreign lenders

and that that's that is a consistent pattern. What's different today, UH, And I know we'll get to talk about this is the role of China, because China is increasingly has the whip hand in essentially in developing country lending. So explain that further. What exactly is the role of China and emerging markets and how much does the outlook for e M defaults depend on what China chooses to do or not do. I think China is the critical element in

emerging market lending. The One Belt, One Road initiative has meant that China has UH provided money either loans or investments in dozens of countries around the world. For ports, for rails, for UH, communications, infrastructure, you name it. The Chinese are promoting it and UH and lending money to developing countries. So China has become and this this is the critical element. China has become a huge lender and investor in developing countries. But no one knows how big

they are. No one knows, I mean the Chinese know, but no one else because the contracts under which they invest our secret. I've I've asked on many occasions to see a copy of these loan agreements, and it's always we can't talk about that. It's it's part of our agreement. And I don't think the even the I M F has a clue what the scale of those investments are, which means that when you face a restructuring, you've got a creditor, a very aggressive and important creditor, China, which

does want to take a discount at all. So you have a super senior element there that we've never seen before in the history of E M lending. I was about to ask what kind of creditor is China. I know, it's hard to tell because we haven't really seen them enter a massive default cycle since they wrapped up their lending. And you're completely right that it's hard to tell the scale of that lending, and Bloomberg has made attempts at various points in time to put a number on it.

It's a very very non transparent. But what sort of indication do we have of how they might behave in a distress situation, Well, how they behave in pretty much every commercial situation. Uh, they're right and you're wrong, and they're implacable foes on many levels, but particularly when it comes to the debt. It's it's just I'd like to just go back to this very little geeky but I think important point, which is, can you imagine a sitting down at a negotiating table with a group of creditors.

You've got the I m F, the World Bank, other multi lateral institutions, and you've got different creditor groups, banks, industrial lenders, investors, UH and bond holders. Everyone's at the table, everyone's documents are on the table except for China. So you have this huge force, you know, in the room and outside the room that won't tell you how much they owe and isn't willing to take a discount to

make things make things fit together. So it's almost in that climate, it's actually it actually becomes, in my view, impossible to have restructurings that really get countries out of the woods and put them on a strong financial path, because you've got one. Used to be that we would complain about the I m F being insisting on being

super senior. Now you've got a creditor that is put in placing itself super senior to the I m F. Something UH that we talk about on the show from time to time is this sort of difference between you know, the financial cycle and the economic cycle. And you know, what we've been talking about so far, it's seems like very much the financial cycle. And you mentioned, you know, you have this situation where one country or two countries default suddenly all the money pulls back or on the flip.

A bunch of retail investors see that, you know, looking open their copy of Barons and see that I'm the best best last five years. That's some e M funded Like, yeah, I'll put my money in there. What is the So there's this global clearly downturn in the sort of liquidity cycle. The financial cycle is clearly in retreat. What's the macro cycle, like the sort of like actual like underlying ECNT cycle.

And how much stress is that putting countries under? I think the what's what's happening even in the last three months, prices of energy and foodstocks is something we haven't seen in a long long time, and it puts a lot of pressure on every country because the first, the first obligation of a government is to is to keep its people warm and fit. And I think the extent that that's put at risk, and it is at risk now

in in dozens of countries. Countries really have no choice but to prioritize those needs over payment of foreign debt. It doesn't mean that they don't respect foreign debt or intend to restructure it or repay it at some point in time. But I think in the near term they'll make a correct political decision for themselves to delay, defer, or deny those payments. So Joe asked a question that I thought was interesting, which is why do countries default?

And I want to ask a similar question about incentives and decision making. But you are at Elliott for a very long time. How did you decide what distressed investments to because you targeted, you know, some very specific not just countries, but very specific bonds issued by those countries. There are there are a few, um a few really important elements to any investing, and particularly sovereign debt investing.

One is that the end. One is that the contract has to be strong, and sovereign bond contracts have gotten much much weaker over the last twenty years. Really a concerted effort on the part of the official sector. UH and the G seven Europeans have been at the at the forefront of this diluting covenants and making it more difficult to enforce in the event of a defall. But the most critical element is your basic financial analysis of

the country. And uh and Tracy, you're absolutely right. You know, at Elliott we were extremely selective in the death that we bought because you really had to believe. You always have to believe when you're when you're buying sovereign debt that the debtor is capable of honoring its contracts. And so those are the two critical elements. Is the debt are able to pay? And contractually is there a way to keep them at the table. So I have to ask would you have bought Russian bonds with that in mind?

I have never bought a Russian bond. I never would buy a Russian bond, Russian Russian um and in fact I hadn't I hadn't looked until recent days. I hadn't looked at the Russian bond contract for a very long time, and I had forgotten this that Russian debt Russia does not wave sovereign immunity. So the critical element of contemporary bond contracts is a waiver of sovereign immunity, which means that you can sue by agreement, you can actually go to court. You can go to discuss the issue exactly.

You can go to court typically in either the US or the UK or both, and that is an essential element. The other one of the other critical pieces is not just waving immunity, but agreeing where you can be sued. So if Russia says I don't wave immunity, we're back to a world that we haven't seen in sovereign debt since the fifties, well before the Foreign Sovereign Munities Act and the State Immunities Act, where the sovereign is a

beneficiary of absolute immunity. It's what sovereigns are. They do what they want when they want, they pay what they want when they want to pay it. And that's the

position that Russia has staked out for itself. Why was there I mean, we had we talked about Russian debt, I think back March share early on after the invasion, But you know, we talked about the end of the fact that there weren't many covenants, that there were all kinds of things buried in the language that seemed to be sort of favorable for Russia all those years, even after the invasion of Crimea I think, which was in fourteen.

Why was there still so much willingness between that period when it was clear that the country would be willing to be a military aggressor and engaging activities that people would associate with a prize state. Why up and for basically another eight years after that did there and then the conditions that you just mentioned about not waving sovereign immunity. Why was there so much willingness for all those years on the part of buyers to continue buying Russian bonds?

In your view, because Russia was a great payer. They kept paying throughout even after the sanctions imposed, you know, post Crimea in and they showed no indication of not intending to honor their obligations. So Russia looked like a like like a strong credit. And in fact, Russia even at the beginning of this of this crisis, post January February, Russia insisted and did make payments. So Russia really in it appears to all intents to intend to be a

responsible debtor. Right now, it's it's um because of sanctions, it's foreclosed from doing that. I want to go back to something you said about Sri Lanka and you're like, Okay, there's a default, but the world comes together and all these international institutions that I'm at, the G seven, the Asian Development Bank, etcetera. And they try to help Sri Lanka out. It's not Sri Lanka's fault that they're in

the stress. And when you said that, I clearly got the impression that you think that this is a bad system, or that this sort of generosity towards Sri Lanka in the wake of a default is not productive or misplaced. Can you talk about your view a little bit more on that. I mean, it's been a pretty tough two years. There was a pandemic, then there's been surging inflation. Why shouldn't all these public or official institutions take the view that Sri Lanka got into a bad place and they

need help. If we go back to basics. And I wrote a little piece about this that I called Unsafe at any Price, comparing sovereign debt to the corvet sovereign debt. The idea of a sovereign borrowing and a current see that isn't its own, is fundamentally flawed. It's a really bad idea. But the entire structure of the sovereign dett industry is you know, it supports the idea that it's

that it's not a bad idea. But if you take the case of Sri Lanka, and Sri Lanka had borrowed in its own currency rather than in the dollar or in the euro, it wouldn't have a problem because it could just print its own currency. Now, the response to that, and we get this all the time, people saying, well, but they couldn't borrow if they couldn't borrow that much money unless they agree to borrow dollars, And isn't that

just the point? So would you argue therefore, I mean, you know, again, I'm really struck by this idea that flows often start because retail investors see the adds in the newspapers that really this whole system of a sort of like public financialized sovereign debt market particular for MS, sort of flawed the core, completely completely flawed, completely rotten.

If it were if 're up to me and I had my magic wand I would repeal the Sovereign Immunities Act, and I'd repeal the State Immunities Act, and I would I would go back to the principle of absolute immunity, because if you're if you're looking at absolute immunity, and maybe the Russians have the right idea and perhaps not borrowing in occurrency not their own, but the right idea, and saying you're looking at if you look at me as a sovereign, I'll pay you what I want when

I want, and you have to trust me. And that would put investors on a very different footing. It wouldn't make the underwinding community at all happy about it because it would mean that they couldn't sell as many bonds. But wouldn't that be sagatary. It definitely sounds like you'd probably get less boom bust. It would be harder to sell debt probably during the boom, I guess, but you don't get these huge swings and flows. I think that's

exactly right. Could you talk a little bit about E s G and how that relates to sovereign debt, because you know, we're talking about the Russian bonds and one of the things that stands out is that if you read the risk factors, it's just a litany of bad stuff that Putin has done. Basically saying that he's done a bunch of bad stuff, there might be sanctions, he could do more bad stuff, And yet you had big investors who ostensibly care about E s G and social

values who bought a lot of the debt. And at the same time, now you're seeing a lot of people talk about E s G as a sort of political consideration. So do you want to lend to Russia if it's considered an enemy of the United States and things like that. I think the short answer to that is no. I think a lot of people are not going to a lot of people will be taking E s G into account, and there will be less of a market for certain debtors.

But it's um if if you're gonna cast the E s G net over developing countries, generally you're gonna run into trouble because we're talking about countries that you know that on average, and it's unfair to to malign people as an average, governance is poor and in many cases uh corruption is rampant. And at the same time, countries are producer of natural resources that are desperately needed by

Western industrial countries. So people who will need to turn a blind eye to all those factors because of the geopolitics and the geo economics. So do you think we will see I mean, okay, so so far in this cycle, what have we seening? We've seen Sri Lanka, it has defaulted, anyone else? Uh, Lebanon? Do you expect to see several

more coming? I mean, if you say this is you know, I think in your first entry he said a perfect storm, which is a phrase and Tracy and I know in every day so every episode these days, whatever it is, it's in a perfect storm. The dollars in a perfect storm text docs is a perfect it's the most But what there are a lot of perfect storms happening right now. I mean, would you expect to see this just the

absolute number of defaults pick up significantly? I would expect it to And I think I think it's actually what you're describing is actually one big perfect storm because all these things are related, and it's because we haven't seen this kind of a boom and a bust in financial markets where this kind of a bust in what about fifteen years, uh, and maybe on the tech side over twenty years. So it's there are so many elements that conspire against sovereign debtors continuing to be able to pay

what they are. So you touched on this a number of times. What would you expect a bust of a significant scale to lead to some sort of significant change in the way emerging market debt markets actually work? I mean, would you see the balance of power shift more to

the credit DERs away from the issuers. Would you expect less foreign currency debt to be issued in general and things like that, or do we just have a default cycle and then we just go back to the way it always has been or the way it's been for the past couple of decades. Um. I don't expect there to be a lot of fundamental change. I think we'll get through this period. And the the other important pieces that the absolute amount of developing country debt is rather

small in international financial terms. It's not big enough two in and of itself cause a problem except for the debtors themselves, who get trapped in a cycle that takes

many years to to work through. But what is somewhat different in this cycle, and we saw it two years ago in the case of Argentina in their most recent restructuring, is that the bond contracts are so weak so creditors realize that they don't have a lot of leverage, and because they don't have a lot of leverage, they agree to deals that are that are you know, much much better for the debtor and much worse for creditors. And

I don't see that changing. I think if, if, if investors study the details, they'll realize that these are not The bond contract isn't a safe place to place your bet. History being what it is and markets being what they are, I don't think we're going to really see much change. So you mentioned Argentina, and you know that was an enormously profitable trade for Elliott famously, and you just spoke about the importance of actually looking at contracts, looking at

the bond documentation and sifting through it. What was the smartest move that you pulled at Elliott when it came to Argentina. What were you most proud of? And please be as technical as you want, because I have some specific things in mind, but i'd love to hear what

you're thinking. I think that it's it's easy to to be grandiose and take credit for the Argentine re structuring, but in fact, many creditors work together in that and I think that one of the things that I'm most pleased with is the the ability of the creditor group to really stick together and be thoughtful about what was possible in terms of Argentine restructuring, and that collegiality persisted to the very end through the through the restructuring and

ultimately resulting and restructuring that was extremely good for Argentina and extremely good for for the creditors that remain standing. But a lot of creditors, of course, we're peeled off along the way by the Kirshner's aggressive tactics and populism.

But I think that the idea of collective action is something that I think about a lot in terms of restructuring is generally and emerging mark restructurings, uh, you know, in particular, and you see you see that ability to act collectively fading the diversity of creditors in Argentina, I think produced a in most recent restructuring produced a very bad result with you know, massive debt forgiveness that was completely uncalled for because creditors really couldn't agree amongst themselves.

And this is this is what I call the just say no moment that when you're faced with a situation in which it's you have no leverage and the debtor is being aggressive and obstructive and obstreperous, which is defines Argentina. Sometimes you just have to back away from the table. But that is the most difficult thing to do, because there is a propensity on the part of participants in any situation to want to stick with it and remain

at the table, and sometimes you just can't. But that's the that's the one element that if creditors could really understand that, embrace it and resort to it, it would be much better. Sorry, I have a really basic question, but you know, if a country defaults in the market, they're supposed to be penalized in some way for that. In theory, people are supposed to say, well, they're not a reliable borrower and so we're not going to lend

to them again. If you're an investor or a creditor and you back away from a negotiation or you don't do something that the sovereign issuer would have liked you to do, do you get shunned in the future from debt sales or do you get penalized in any way? I think you do. You do get shunned. I think Argentina is currently being shunned, will be shunned. But I think it takes a long time for markets to develop

that kind of muscle memory. Uh And in the case of Argentina, it's taken decades and decades for people to realize that fundamentally, Argentina is not a reliable counterparty. I think for most other countries that don't have that kind of history of aggressive defaults and repeated defaults, investors are willing to give new governments a chance. I think the question is going to be whether, in the case of Argentina, when and if there is a change of regime, markets

will give that new regime a chance. The the Mocker administration is perhaps one reason that investors shouldn't jump in too quickly, because Mackrie was there for a very short period of time. He did restructure the debt, he did bring Argentina back to capital markets, but as soon as he was gone, Argentina was back in the tank. But what about investors. Do they get penalized as well if you don't, you know, do what a government wants, or if you walk away from the negotiating table. We haven't

seen that happen. How do you know in that moment is there that it's time to walk away? I mean, I assume this is what separates the elites from the right, But what is it. How do you know in that moment is there to think you just say that in

the case of Argentina, asked, The discussion went on. It moved to Argentina saying we're gonna pay what we're gonna pay, and creditors then, at the behest of some of us who were encouraging a restructuring of the bond contract, some creditors said, well, if you're gonna give us a fifty haircut, uh, even though you may not need it, and even though you haven't put forth a fiscal plan that describes your capacity to pay, if you're going to do all those things,

at least give us new bond terms that are going to be create what I call a super bond, a bond that is actually enforceable and would be senior to any other kinds of debt. And what Argentina said flat out was absolutely not, We're gonna be the same garbage covenants in the same garbage paper that we're currently sitting at this table talking about that would have been a moment to say, we can't we can't live this way.

We can't live with a default, a massive haircut, and a bond contract that makes it completely optional whether you ever pay us another dime again, can you explain what you mean by their structuring was great for Argentina too? Well? I think it was great for Argentina in the sense that Argentina now has a much more manageable level of debt. It's got a bond contract that really does make repayment an option it makes. It can pay or not pay depending upon its view of its financial situation and its

market access. So I think that it's um Argentina is for the moment in the catbird seat, except that it doesn't have the kind of market access it needs. It doesn't have the kind of credibility it needs. And one example of that is the Vakamrita. So this huge formation of oil and gas, it's shaped like it's called Vahamwara,

and i've I've fractured the Spanish. But because it looks from the sky like a dead cow um and it's a it's a massive reserve of hydrocarbons that should have been exploited, you know, through through drilling, through pipelines, through exports over the last many decades. But because of Argentina is fractious politics, it hasn't been. So you have a you know, a country as as ever in the case of Argentina that ought to be incredibly wealthy that isn't

because of its own peculiar psychology. I just remembered. I mean, they did issue that hundred year bond, remember which which is now do we have a quote on where is that trading? Yeah? Well, so this was gonna be my next question. So it's trading terribly at the moment um, largely because of duration. You would expect to bond at a hundred year maturity issued at a very low interest rate to have like a high duration risk, and as

rates go up, it's going to get crushed. How much are the pure interest rate dynamics, you know, setting aside credit fundamentals, but just the dynamics of interest rates actually going up and increasing payments for emerging markets? How much is that a problem? It's always it's always a problem. That's I think you described that Tracy at the very beginning of the hour as prices for a new debt go up, the ability to refinance goes down, and that's

where countries run into trouble. But the hundred of year, maybe we should think about hundred of your bonds as a bellweather. You know, it's a bad sign when somebody is able to borrow, especially a country that doesn't have a hundred year history of borrowing can borrow for a hundred years. It's just that's just madness. So one of the things you're known for at Elliott is basically I'm thinking how to put this but creative, creative solutions to

pursuing payouts. And I remember, for instance, you brought racketeering charges against a French bank. How do you and of course there was the famous story of seizing the Argentine naval ship and things like that, But how do you actually come up with those sorts of ideas for pursuing payouts? Because some of them are quite creative in the sense that not everyone well no one had tried them before.

Most countries pay with they oh and whether they pay it early on or later on, they have a willingness to actually make good on their obligations. So we're talking about the hardest cases, making the worst law and so the very few countries that have a kind of cultural indifference to making good on their obligations create a lot of need and opportunity for creditors. And so that's where

the creativity comes in. When you when you have a country that really doesn't want to pay what it owes, you're in a position where you just have to keep getting their attention. And the Argentine saga, which and again it wasn't just Elliott Management, it was many firms that were involved in in that over long period of time. The goal was always to get Argentina to the table. Because even though many creative attachments and arrests you mentioned

the Libertad lanes were arrested in France. Today the plane of the President of Congo is under arrest and is about to be auctioned. Uh. Sometimes people have attached oil cargoes. You have all all sorts of creative avenues, but debt cases don't get resolved through attachments and through execution against assets. They always get resolved through settlement. So the goal is always to get the attention of the debtor, but not

push them away. Unfortunately, sometimes creditors do things that do end up pushing them away, and then the only opportunity is really regime change. And that is what happened in Argentina while Christina Kirchener was in charge. It had become impossible because she loved calling creditors vultures, and she loved her stature as coman who was standing up against them. Well, just on this note, I mean, is there anything that you regret doing or something that you would have done

differently with the benefit of hindsight. As an investor, you always regret not buying more of the things that did well. I want to actually go back to, uh, the discussion of the novelty that is China's role as the sort of very senior creditor, you know when you when when I, you know, the One Belt, One Road initiative first sort of came on my radar or something I thought about it seemed like, well, this is like, you know, a

strategic act of foreign policy. So it's like, yes, you invest, you know, China invest in infrastructure in numerous countries, but you know, for part like foreign policy influence and to

build up a trading partner and so forth. Is it surprising that instead it's taken such a hard line simply on the question of being paid back, because if you do think, like, okay, is this about or I would have thought that if this is about extending China's foreign policy reach or extending it's just sort of deepening its relationships with countries all over the world, across Asia, across Africa, that it would have been more conciliatory on the restructuring

side to maintain those relationships. Uh um, I agree with you that that that would make sense for China if it wants to be part of um, you know, our current Western liberal tradition and system. But China gives no indication of wanting part of that system. China has, I think, a very different view, has a different system. It wants to go its own way, and if it can disadvantage and crush other creditors in the course of restructurings, that

appears to be what it wants to do. I think if we really can't talk enough about China and the role of China in developing economies on on every level, from the perspective of controlling natural horses, from the perspective of being a direct foreign investor, from the perspective of being a lender, China will be the dominant the dominant question for the next several decades unless things change, and

it's unclear what could cause anything to change. Because China still has the ability to pump out huge amounts of money and people to develop projects around the world. Should governments in the US and Europe be more proactive or be thinking more aggressively than they are about not seeding all of this influence in various developing markets to China.

I think there's no question that that's the case. But it's uh, can you imagine Western governments being having a cohesive and coherent policy on any on any topic, let alone a African development policy. So so let's just take the simplest possible question. You're you're a You're the G seven, and you know that China is the big dog, and you know they've invested in lent huge amounts of money. You just want to see the contracts. You just want

some transparency. So Western governments should be insisting as a condition of any restructuring that involves sovereign debt, whether it's private sector or public sector, that that all the creditors come to the table and and put their put out their cards and show what they've got and that would seem to be a very easy position to coalesce around.

But will it be just on the topic of China, And this is something else that's come up recently in a different way, But there is a sense out there that some of China's lending has been exploitative in one way or another. So we haven't seen the contracts exactly, but there's a suspicion that, for instance, a country might be giving up some portion of sovereign independence in order to get money from China to build a massive port

something like that. And we've also seen some noises around um, you know, on the other side of the world, Haiti and the idea of reparations. And you've already mentioned the V word, which is vulture funds, and when it comes to distress debt investors, there is a sense that they can be exploitative in some way and they're ringing money out of poor nations. How would you respond to that criticism and how are you thinking around the idea of

reparations for sovereign debt injustices in general? The word that comes to mind when we embark on this kind of conversation is the C word, which is corruption and I don't. I don't think there has ever been a a sovereign debt crisis or sovereign debt problems where corruption isn't an

underlying issue. And this is another place where Western governments could take a very insistent role, a place where I m F could take a very insistent role and and focus on corruption and not just the existence of it or the past effects of it, but the possibility of

recovering ill gotten gains. I wonder, I'm thinking out loud now, I wonder whether what's happening with sanctions in the case of Russia might be a watershed because Western governments have become very willing to sanction the vast numbers of individuals around Vladimir Putin go after their their bank accounts, their companies, notably their yachts and their planes. And at this point, at just point, at this point, most have just been ceased,

they haven't been confiscated. But I've never been involved in a in a sovereign debt situation in which the if you were really thinking about the balance sheet of a country, corruption and still gotten gains shouldn't have been an issue. And just if we just imagine a world in which creditors became in a way private attorneys general, and we're licensed to go after people that have been milking a country for a decade after decade, which unfortunately is all

too prevalent. You just have to look at transparency international rankings to understand that whether the whole dynamic wouldn't change

in a very positive way. Just to push this a little further in theory, if you have a country that has a highly corrupt government, you know, and then you have a regime change, I mean, I guess part of the argument seems to me that, well, the citizens of the country shouldn't be like punished in perpetuity for years or future governments shouldn't have to make this decision about well, are we going to pay back the debt of the press corrupt government, or are we going to feed our people?

Are we gonna build hospitals? Are we going to build infrastructure? And it seems like you still have this like problem where okay, even if you were to root out this corruption that the citizens who were just they're often probably exploited themselves in many cases, are then still paying the price for made. This gets to the odious debt conversation that we've had around a rock and others, but are still paying the price regardless of their culpability. It's bad.

Government is is unfortunately a huge, huge problem, and I'm I'm completely sympathetic to the idea that people that live in these in these horribly corrupt and opaque regimes are

are punished. But how do you break the cycle. It seems like, getting back to your other point that the entire system of private investment in sovereign debt, particularly sovereign hard currency debt, is just deeply flawed, and he gets back to this idea, it's like, why do we even have all of these private creditors out there in the first place, or such a large number of private creditors at all in the role of sovereign finance. Well, investors

are are fundamentally optimistic. And there's a whole other level of investment that we haven't talked about, which is and you has mentioned this show, which is the foreign direct investment. And you have recent cases in particularly involving India, world's largest democracy, which when it's faced with arbitration awards because it's confiscated property, decides to vilify investors and avoid payment. So it's Uh, it applies not just to debt but

direct foreign direct investment. And this fundamental optimism on the part of investors because we are you know, every every time you lend money or invest money, you're being optimistic about your your not just your own process and your own analysis, but the capacity and willingness of your investee and your or your bar word to on their obligations. But to the point about reparations, this is it's it's

an issue that's on the table. It's obviously being discussed, but I think it can't be discussed in a vacuum, and it really has to be discussed in the context. And you look at a country like Haiti where elites have really destroyed that country by milking it consistently over decade after decade after decade. How can you talk about reparations without going after the the elites they have stolen

the country blind? This is how you get there. I'm not quite sure, but I know that you have to get there to have a fair and sensible conversation about all those questions. All right, Jay, it's been so great having you on the show. Thank you so much. That's Jane Newman, formerly of Elliott and the author of the novel under Money in book Stories. Now, Je, thank you so much. That was great, Thank you, thank you, Joe.

That was a really interesting conversation, I thought, and one of the things that stands out to me, and I know the benefit of hindsight is of course, but the Argentine hundred year bond just a side whenever you see a country without a hundred year history of issuing debt, issuing for a century and that supporting it was a really crazy time. I mean, I got, like, you know, there was also the Austrian one, but like, okay, I understood that's just a normal long direction. As a half Austrian,

we should leave Austria alone, you know. But yeah, there were there's sort of two famous century bonds. I was also, I mean, there were a lot of interesting things. The the unique novelty well, actually, you know what I was very struck by is jay is point that maybe this

whole system of borrowing hard currency debt is flawed. And you know, of course we've had the MMT conversations and all the people saying, well, you know the first thing that these countries should do is stop borrowing in dollars, stop borrowing in currencies that they can't print themselves, whether they be dollars or euros, that would at least get

somewhere some progress. So it's interesting to hear a a veteran of the actual industry kind of say the same thing from the other perspective, and you managed to bring it to m M. Didn't hear our? Right? Shall we leave it there? Let's leave it there? Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart. Follow our guest on Twitter, Jane Newman.

He's at Jane Newman. Follow our producer Carmen Rodriguez at Carmen Arman. Followed the Bloomberg head of podcast Brancesca Leav at Francesca Today, and check out all of our podcasts at Bloomberg under the handle head Podcasts. Thanks for listening.