452. The Groundbreaking Case That Changed Sovereign Debt Law with Gregory Makoff

unSILOed with Greg LaBlanc

The thing about sovereign debt is that if a country defaults on its loan, there are no international bankruptcy laws in place to ensure the creditors get their money back. So what happens then?

Gregory Makoff, a physicist turned banker, is a fellow at Harvard Kennedy School and the author of the book, Default: The Landmark Court Battle over Argentina's $100 Billion Debt Restructuring. In this debut, Makoff tells the gripping story of Argentina’s years-long court battle in the U.S. to settle a massive debt.

He and Greg chat about the tricky nature of sovereign debt, the inner-workings of the Argentina case and why it took more than a decade for the debt to be settled, and the lasting impact the case has had on sovereign debt law.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

Is the IMF failing broke countries?

01:06:51: The biggest problem with most countries, for me, is going to the International Monetary Fund (IMF) too slowly because you're in a deeper hole. You have more debt. It hurts the debtors more. You need a bigger adjustment. So, for me, the IMF isn't the problem. It's countries hearing all this negative IMF theory and politics and that anti-IMF view hurts them. And so, I think they do as well as they can. They're a member organization. Are they perfect? Nobody's perfect. You work with them. That's why you need countries to understand IMF programs, how they work. They need to do their own economic models. They need to be proactive with the fund and say, we need this and that. We don't want to do this and that.

Bridging differences and highlighting the role of arbitrators through 'Default’

31:34: The book (Default) is really about two things. One is good-faith negotiation—getting people to settle their differences and not letting the partisans far on the left or far on the right dominate the solution. And the other one is the role of arbitrators.

Why is it that we don't have an orderly process or system for sorting out government debt?

102:10: The answer is the word sovereignty. And you can ask the same, similar question: well, why isn't there an international court that makes wars not happen? And it's, a country wants to go to war, you can't stop it. My country doesn't want to pay its debt. In fact, when you buy a security, a bond, or a loan from a foreign country and they don't want to pay, there's not much you can do about it.

Can Argentina break free from its debt trap?

33:39: What does Argentina do? It's got a big debt load again. Does it just keep defaulting? Or does it wake up someday and say, We're going to start honoring our debts? We're going to live within our means. And they elected Javier Millie. He came with a chainsaw. He said, We're going to honor contracts. It's going to hurt. But the people are exhausted by crisis of the 80s, crisis of the 90s, crisis of the 2000s, crisis of the 2010s. And they're like enough. We value financial stability more than we do short-term increased pension, increased wages. And how that plays out is incredibly important, and it's unchartered territory

Show Links:

Recommended Resources:

• Anne Osborn Krueger
• International Monetary Fund (IMF)
• Elliott Investment Management
• Cristina Fernández de Kirchner

Guest Profile:

• Fellow Profile at Harvard Kennedy School
• Social Media Profile on X
• Book Website

His Work:

• Default: The Landmark Court Battle over Argentina's $100 Billion Debt Restructuring