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DebtCon3: A Curtain Raiser and a Love Story

posted by Anna Gelpern

DebtCon3, the Third Interdisciplinary Sovereign Debt Research DebtconXand Management Conference, is starting in just a few hours at Georgetown Law. This year's DebtCon takes place in parallel with IMF and World Bank Spring Meetings. When we first launched the DebtCon project in the snowstorms of 2016, the idea was to have a giant party -- a sovereign debt Coachella -- channeling nerdy energy across different academic disciplines and institutional ecosystems, gathering everyone willing to obsess over public debt to help solve a handful of concrete problems. Mitu wanted to serve frozen pizza, but kind souls chipped in for dinner, and we had fish. The Argentina (!#@%*!) panel was snowed out. Nobody got the Sovereign Debt Research and Management joke ...but the temporary tattoos worked on key demographics, and we came back. In 2017,   Ugo Panizza and his colleagues at the Graduate Institute put on a fabulous DebtCon2 in Geneva, which set an impossibly (Swissly!) high bar for organization, and here we go again. At last count, the star-studded DebtCon3 program has some 120 speakers, plus over 200 registered guests from around the world -- a humongous number for what is often considered a narrow topic. So what is it about sovereign debt? ... and what is it about DebtCon?

Sovereign debt is hugely important and utterly bizarre. It is the basic building block of finance--core banking asset, pricing benchmark, favored collateral--the carbon of financial life.  It is also an unenforceable contract ... that never goes away, because there is no bankruptcy to override it. Sovereign debt takes the most mundane commercial forms, even as it mediates high-stakes political and strategic relationships. Come to think of it, "sovereign" and "debt" sure sound like incompatible ideas. Who would not go down that rabbit hole?

A bunch of us did, and ended up at DebtCon. DebtCon is an attempt at intense, iterative interdisciplinary work. We make every effort to have different disciplines represented on each panel, and to mix market and policy practitioners with academics. We commit to repeated interaction across academic and practice areas because it forces us to engage seriously with perspectives and methods that might feel strange and even goofy at the outset. Knowing that we will meet again justifies the necessary investment.

We know we will meet again because sovereign debt is a perennial problem. In 2016, Argentina's debt enforcement drama still occupied center stage. This year, the unraveling of Venezuela is probably the biggest challenge. Mindful of the snowstorm jinx, we avoided a Venezuela panel, but sought to address the crisis throughout the conference, on panels dealing with governance, sustainability, and debt contracts.

For the first time, we have a panel focusing on the intersection between climate and debt vulnerabilities--a necessity after the hurricanes in the Caribbean and the recent cyclone off the coast of Africa. My guess is that this topic is a keeper for future DebtCon rounds.

By 2019, there has been enough experience with new, improved sovereign debt contracts for a meaningful stock-taking. Several papers consider the effects of majority amendment and other collective action clauses in sovereign bonds on ex ante bond pricing and ex post restructuring options. This work should be valuable for the ongoing initiatives to reform euro area debt contracts. Meanwhile, Puerto Rico's experience with PROMESA, a variant of statutory sovereign bankruptcy, could yield insights into the relative merits of contractual and statutory restructuring regimes--though it is hard to tell whether these are generalizable. Beyond stocktaking, we cast a wide net for sovereign debt contract features to them more resilient and adaptible, capturing indexation and other contingency terms, foreign and local characteristics. Venturing further outside some comfort zones, we have sought contributions on the implications of fintech--notably blockchain technology and digital currencies--for sovereign debt management, monetary and fiscal policy.

Sessions on debt vulnerabilities and sustainability, low-income countries, and financial stability reflect the fact that DebtCon3 takes place against the background of dramatic changes in the global financial system. Capital mobility has substantially weakened the link between debt form and creditor identity, creating new arbitrage opportunities. Today's creditors to sovereigns are much more diverse than their predecessors at the turn of the century. They may use different legal forms, and follow different economic and political imperatives. Some see no reason to invest in the debt restructuring and creditor coordination institutions of old -- because they are not represented in them, because they are unconvinced of their merits, or both. This means that the already fragmented sovereign debt restructuring and dispute resolution frameworks are becoming more fragmented, with more contracts out of sight and disputes resolved in private venues. Data gaps are everywhere, and are first and foremost a problem of democratic accountability, part of an increasingly complex governance challenge.

In sum, sovereign debt continues to be a fascinating and fraught universe. Help fix it -- come to DebtCon.

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