sovereign debt

Why is “debt-trap diplomacy” nothing more than an anti-China meme? Why is the geopolitical interpretation of Chinese overseas lending wrong, and what does that suggest about US/Western estimates of China’s intentions? Why do Chinese firms hate writing down unpayable debts? And why do smaller developing nations rarely benefit from international financial competition? I sat down with the great Shahar Hameiri to discuss all that and more in the latest episode of the pod.

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Shahar and Lee’s piece, “China, International Competition, and the Stalemate in Sovereign Debt Restructuring: Beyond Geopolitics.” 

Shahar Hameiri and Lee Jones, Fractured China: How State Transformation is Shaping China’s Rise.

Deborah Brautigaum, “A critical look at Chinese ‘debt-trap diplomacy’: the rise of a meme.”

Shahar Hameiri and Lee Jones, “Debunking the Myth of Debt-Trap Diplomacy.”

John is joined by Dennis Hranitzky, partner in Quinn Emanuel’s Salt Lake City, New York and London Offices,  Head of the firm’s Sovereign Litigation practice and Co-Head of the firm’s Global Asset Recovery Practice.  They discuss various kinds of litigation, arbitration and collection actions against sovereign states. They discuss collection cases against sovereign states resulting from those states’ default on debt instruments, the challenges faced by creditors who hold out after most creditors agree to a debt restructuring arrangement with the sovereign, recent proposed legislation any other government actionsfavoring sovereigns, the current sovereign debt crisis, and concerns about opportunistic funds who seek profit by collecting on devalued sovereign debt.  They also discuss investor state arbitration generally, for example, after a company has invested in a project in a country and the country fundamentally changes the terms under which the investment was made, such as radically raising taxes as Spain did with respect to renewable energy projects after 2008. They discuss the position taken by the EU that EU courts cannot enforce arbitration awards against EU nations even when the nation entered voluntarily into an arbitration treaty and recent indications that the United States government supports the position of the EU.  Finally, they discuss litigation against sovereigns unrelated to sovereign debt, such as litigation against state sponsors of terrorism including the lawsuit Quinn Emanuel recently filed against Iran on behalf of victims of the October 7, 2023 Hamas attacks. 

Podcast Link: Law-disrupted.fm
Host: John B. Quinn
Producer: Alexis Hyde
Music and Editing by: Alexander Rossi

This strategy fell out of favor, but it may be poised for a return. • Learn more at thriventfunds.com • Follow us on LinkedIn • Share feedback and questions with us at podcast@thriventfunds.com • Thrivent Distributors, LLC is a member of FINRA and a subsidiary of Thrivent, the marketing name for Thrivent Financial for Lutherans.

Special guests Lee C. Buchheit and David Lubin share their insights on emerging market sovereign debt crises, the US dollar’s future as a global reserve currency, China’s evolving economy and more.

Speakers: Lee C. Buchheit, Professor, University of Edinburgh; David Lubin, Head of EM Economics, Citi, Associate Fellow at Chatham House

Host: Scott Phillips, Associate Managing Director – Emerging Markets, Moody’s Investors Service

New Zealand's record current account deficit is significant in both a NZ and global context, and there are interesting comparisons to draw between 2023 and 2011 when S&P Global Ratings last downgraded NZ's sovereign credit rating, S&P's Martin Foo says.

The current account deficit, reflecting we're spending more than we're earning overseas, swelled to its highest dollar value of $33.8 billion last year.  As a percentage of Gross Domestic Product (GDP), showing its significance in the context of NZ's overall economy, it weighed in at 8.9%, the highest it has been since the 1970s.

Foo, director and analyst at credit ratings agency S&P Global Ratings, spoke to interest.co.nz in the latest episode of the Of Interest podcast about this and more.

Foo talks about why NZ's current account deficit is so big, why it could get worse before it gets better, what a country can do to try and reduce a current account deficit, explains S&P's existing NZ sovereign credit ratings, why NZ scores lowly in S&P's external assessment, NZ's international investment position, how S&P would signal a potential downgrade, whether an upgrade's possible, and S&P's assessment of last week's budget.

*PLEASE INSERT AUDIO HERE*

 "We [S&P] are raising our collective eyebrows and raising some serious questions. The current account deficit is an indicator of underlying economic conditions, or underlying fiscal conditions, and we have to think about what's causing these record imports," Foo says.

"New Zealand's external metrics do look quite weak compared to other comparable countries right now. As a simple example, last month the International Monetary Fund released its world economic outlook and the current account deficit at 8.9% of GDP was actually the largest of any advanced economy with the possible exception of Greece. Perhaps what's more interesting is the IMF is projecting that the deficit will stay quite elevated at about 8.6% of GDP in 2023, which would make New Zealand the worst performer on this particular metric."

S&P upgraded NZ's sovereign credit ratings in February 2021. They're now an AA+ foreign currency rating and a AAA local currency rating, both with stable outlooks. They're the highest and second highest credit ratings S&P issues. (In the podcast Foo explains what foreign and local currency ratings are).

S&P last downgraded NZ in September 2011, lowering the foreign currency rating one notch to AA, and the local currency rating a notch to AA+. Foo says there are some interesting comparisons between then and now.

That was a long time ago and the world was a very different place but there are some striking similarities to what's happening today. 

"New Zealand was facing a rising current account deficit and that was occurring in conjunction with earthquake related spending pressures, as well as fiscal stimulus to support growth. And if you look at today's situation, if you substitute the word 'earthquake' with the word 'cyclone,' then you have a situation that's airily familiar."

Nonetheless Foo says S&P still sees NZ as having "very, very strong credit metrics."

"We currently have New Zealand on a stable outlook. If we were to move we would typically signal that with a change of outlook, perhaps to negative. Right now we're still comfortable with the stable outlook," Foo says.

In the decade since the global financial crisis of 2007-8, a number of countries have faced and succumbed to sovereign-debt crises and declared bankruptcy. After Greece, Ecuador, Venezuela, Argentina, Zambia, and Lebanon, Sri Lanka has recently joined the ranks of countries felled by economic downturn, whose harsh impact will be felt by its people for a long time to come. In this context, the question arises: what role have international financial institutions such as the International Monetary Fund or the World Bank played in these economic crises?  Have they helped or hurt the economic prospects of the Global South?

To discuss this question, we are joined by Ahilan Kadirgamar, a political economist from the University of Jaffna in Sri Lanka, and Jamie Martin, a historian at Harvard University and the author of The Meddlers: Sovereignty, Empire, and the Birth of Global Economic Governance.

New Zealand's $33.8 billion record current account deficit was a shock to overseas investors in NZ government bonds, but is ultimately probably not something people will lose a lot of sleep over, says Sydney-based interest rate strategist Martin Whetton.

Statistics NZ last month reported the annual current account deficit reached $33.8 billion last year, equivalent to 8.9% of gross domestic product, the worst ratio since measurement began in 1988. 

In response credit rating agency S&P Global Ratings told Bloomberg the deficit was; "catching our attention, the persistently weak and worsening current account position of the New Zealand sovereign, particularly given that it has been quite weak the last year or two and our forecasts are for it to narrow.” This led to fears of a potential downgrade to NZ's S&P sovereign credit rating.

In terms of overseas investors who buy NZ's government bonds, Whetton says the current account deficit is something they'll look at.

"And obviously when that number came out recently there was a bit of a shock to the market because there was the immediate response from S&P that suggested that the rating could be under threat as a result," Whetton said in the latest episode of interest.co.nz's Of Interest podcast.

"A decision on that can take some time, And I think if we just cool down for a moment and say 'New Zealand is in a very solid position, it has got a strong economy, and it does have very low debt-to-GDP at the government level,' then it's not something that people will lose a lot of sleep over."

"There are investors who simply have hard mandates around credit rating, but when you're starting at the top of the tree in ratings, very few people would not be able to buy New Zealand [government debt] so that's not an issue if there was a downgrade," said Whetton.

S&P has an 'AAA' sovereign domestic currency rating with a stable outlook on NZ. This rating assesses the country's capacity to meet obligations denominated in the NZ dollar, which almost all government debt is issued and repaid in. (See more on NZ sovereign credit ratings here, and credit ratings explained here).

In the podcast Whetton also talks about the attraction to overseas investors of NZ government bonds, the NZ yield premium over other similarly rated bonds, the big issues in sovereign bond markets at the moment, why he thinks NZ government debt is at a sustainable level, and finally how countries get into trouble with their sovereign debt.

"Typically it's borrow in a foreign currency. The benefit of countries like Australia, New Zealand, the UK, Japan, Italy, [is we] borrow in our own currency. So we pay it back in our own currency and you can always print more of that currency. Now the purists would recoil at that comment and I understand why because it can be inflationary. But if you need to solve it that way you can," Whetton said.

"You also, as we in Australia and New Zealand have found in the last couple of years, can get your central bank to buy [government] debt. I would not say that is the way you do things. Having a fiscal programme that is credible over the medium to long-term is probably your best starting point."

*This episode follows a recent one with Kim Martin, Director of New Zealand Debt Management which is the Treasury unit responsible for managing the Government's debt. And you can find all episodes of the Of Interest podcast here.

Chinese sovereign debt combines the best of both worlds: a premium over developed market debt sovereign debt without adding more risk in return. But what sounds like too good to be true rarely is. Marije Groen interviews Jason Simpson, fixed income analyst at State Street SPDR ETFs about the risks, opportunities and function in the investment portfolio of Chinese Treasuries.

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This week, the Biden administration rolled out the latest round of U.S. sanctions against Russia, slapping Moscow (yet again) with a series of targeted measures to punish the Kremlin for alleged election meddling, hacking, and military aggression. The U.S. Treasury Department identified a few dozen persons and entities, freezing any of their assets in the United States and banning Americans from doing business with them. Russia soon followed suit with its own set of countersanctions, while simultaneously launching an effort to liquidate Alexey Navalny’s nationwide anti-corruption apparatus.

Acknowledging the diplomatic significance of these decisions, arguably the most important aspect of these new measures is the expansion of U.S. restrictions on the market for Russian sovereign debt. To find out exactly how American sanctions can affect Russia’s macroeconomic financial flows, “The Naked Pravda” turned to Maximilian Hess, a political risk expert and a fellow at the Foreign Policy Research Institute, and Dr. Maria Shagina, a postdoctoral fellow at the Center for Eastern European Studies at the University of Zurich and a member of the Geneva International Sanctions Network at the Graduate Institute.

“The Naked Pravda” comes out on Saturdays (or sometimes Fridays). Catch every new episode by subscribing at Apple Podcasts, Spotify, Google Podcasts, or other platforms. If you have a question or comment about the show, please write to Kevin Rothrock at kevin@meduza.io with the subject line: “The Naked Pravda.”

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