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Keeping Cosy by the Dumpster Fire: A Sovereign Debt Series

posted by Anna Gelpern

Lest anyone thought they could quarantine or protest in peace, no such luck in the sovereign debt world.

Remember when everyone thought a standstill starting May 1 was a great idea, at least through the rest of 2020? For all the good will, May 1 has come and gone, with few takers and fewer givers.

On the subject of give-and-take -- with another default in the rear view mirror, Argentina's government and its creditors are edging closer to a deal this week ... unless their talks get bogged down in extreme distrust, undo more than two decades' worth of sovereign debt contract reform, and drag the rest of the world off the cliff with them ... which would surprise exactly no one who has ever followed that dysfunctional marriage. 

Speaking of no one -- no one seems to have a handle on who owes what to whom on what terms -- not with any precision, in any event -- which is an awkward place to be when pitched warnings of a mega-debt crisis migrate from research volumes to the New York Times.  And no, it is not all China's fault, it's a structural problem with this ecosystem.

Meanwhile, fears of worldwide sovereign debt distress seem to be driving comparisons to the 1980s, which in turn mean different things to different people -- a banking crisis and a Lost Decade to some, market-based (aka publicly subsidized) debt operations to others, and giant shoulder pads to the rest. 

And yet--against predictions and barring classification error--markets have been lending up a storm to vulnerable countries without bothering too much about their contracts.

All this begs two questions--what gives, and what do we do now? -- that are the subject of what should be an excellent Sovereign Debt Forum panel on Wednesday morning, led by Rosa Lastra at Queen Mary, co-sponsored with Georgetown IIEL, and including all the usual suspects. Of course I have no answers, but I will try to noodle these and related questions here in the next few days. In particular, I want to unpack what might have gone wrong with the G-20 call for a standstill, ask whether Argentina's debt restructuring threatens international financial architecture, and yell a bit about our collective obsession with Default ... among other things that will surely come up in the next 24 hours. 

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