Three Sovereign Debt Experts Explain How The World Can Instantly Bring Aid To Emerging Markets

Tracy Alloway (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:17)

So Joe, I think it's fair to say that the world is in a pretty bad place right now.

Joe Weisenthal (0:24)

I would not disagree.

Tracy Alloway (0:29)

We just had jobless claims. Those are still pretty bad. Obviously, we have a huge question mark over the US economy. Europe has been doing very poorly as well.

But I think it's also fair to say that some parts of the world are doing worse than others.

Joe Weisenthal (0:46)

Yeah, it's really interesting because, of course, you have to disentangle the sort of health crisis specifically from the economic crisis.

There are parts of the world that may actually be doing better in a surprising sense in terms of the outbreak of the public health crisis, the virus, but obviously not getting spared at all from the fact that so much commerce is at a virtual standstill. So even places that, yeah, where the numbers don't seem as bad as the UK or the US, from an economic situation, they may be even worse potentially.

Tracy Alloway (1:25)

Yeah, but you also have some parts of the world where both the health crisis and the financial crisis is pretty bad. And I'm thinking specifically of emerging markets. So these are countries that don't necessarily have a really developed health system. And they certainly don't have a lot of money necessarily to suddenly direct to containing a pandemic.

And now, of course, they're dealing with an economic crisis that is making the money that they have, even reducing the amount of money available to them to fight the crisis. So it's really like a double whammy at this point.

Joe Weisenthal (2:01)

Right, that's exactly right.

Relatively rich countries or rich countries like the US for as bad as we may be doing on the public health side, there is no real financial constraint to spending a lot of money, both in terms of helping people pay their bills and also building out a public health system. It's more of a political capacity constraint. But some countries, obviously, they simply don't have the fiscal capacity to do what's necessary to really fight the health front, even if there were the desire or the political capacity to do so.

Tracy Alloway (2:36)

Right, so as bad as it gets in the US., don't forget that the US government can always issue treasuries and widen its deficit for extra fiscal spending.

Sorry, that sounded flippant, but I don't intend it to be. That actually is an advantage. Okay, well, so today we're gonna be digging into emerging markets. We're gonna talk about some of those fiscal dynamics, but we're especially going to zoom in on this debt question and how emerging markets can actually handle the spending that they need or raise the money that they need in order to fight the coronavirus.

Joe Weisenthal (3:11)

Exactly right. So, I mean, we've talked about this before. We had a discussion on it.

We talked to Brad Setzer several weeks ago. That was before some of the, I think, IMF meetings, but it's still, I think many people still sense that there is much more that needs to be done. And again, because of the nature of viruses and also economic collapses, I think time really is of the essence to move before extreme lasting damage takes place.

Tracy Alloway (3:40)

Okay, well, on that note, let's get straight to it then. I'm really happy to say that we have not one, not two, but three guests on today's episode. Two of them have been with Odd Lots before. One is brand new. I'm gonna introduce them all. Mitu Gulati is a professor of law at Duke University and, of course, one of the world's foremost experts on sovereign debt restructurings.

Lee Buchheit is the legendary sovereign debt lawyer, now retired from Cleary Gottlieb, but an honorary professor at the University of Edinburgh.

And Ugo Panizza is professor of international economics at the Graduate Institute in Geneva. All three of them are experts in their fields, and they've come up with a proposal for how emerging markets might be able to weather this crisis. So thank you all for coming on.

Ugo Panizza (4:34)

Thank you.

Lee Buchheit (4:34)

Thank you.

Mitu Gulati (4:35)

Thank you.

Tracy Alloway (4:36)

Why don't we set out the scene, I guess. How much trouble are emerging markets actually in at the moment?

Ugo Panizza (4:46)

Very big trouble, if that's the question. If you want, I can give you a couple of numbers. So we run some estimates, and according to our estimates, emerging markets need to service debt in the next 12 months for nearly $900 million. So this is the public sector, and this is the external debt of the public sector of these emerging market countries. So this is a large amount of money.