Letter from Washington DC. The IMF’s Sovereign Debt Conference.

The IMF recently held a two-day public conference on sovereign debt at its home in Washington DC. How do we measure it? How have governments reduced it in the past, for example in the periods after the two World Wars? How can Japan carry debts of over 200% of GDP while other sovereigns have defaulted with virtually no public debt? And when things do go wrong, how do we sort out the mess of a restructuring in the absence of common legal standards or a concept of state “bankruptcy”?

The conference was designed to allow various authors to present and discuss chapters of a new book, Sovereign Debt: A Guide for Economists and Practitioners, which will be published in 2019.  It’s going to have some great data and history in it, and will be a “must have” for bond investors.

In this short video I give a roundup of some of these discussions.  The IMF has a reputation for gloomy forecasts for the world, and especially around the volume of debt outstanding (now well above the total debt burden we faced going into the Great Financial Crisis), and there was plenty here to be gloomy about.  In particular, the Lower Income Countries (LICs – the poorest subset of the EM nations) have dramatically ramped up borrowing in recent years. As well as public debt issuance, there’s concern about their undeclared state guarantees, as well as direct and opaque borrowing from China, which is likely to turn out to be structurally senior to the bonds.  There’s also nervousness about the growing mutual fund/ETF ownership of less liquid EM debt in recent years. One speaker quoted what’s apparently a Belgian saying: “Trust arrives on foot, but leaves on horseback”.

The draft papers from the IMF conference can be found here.


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