 Welcome to the next episode of Debt Talks, the series by the Private Debt Initiative of the Institute for New Economic Thinking. I'm Moritz Schulerich, fellow VINET and host in these events. Today, we will talk about developing country debt and we again have a dream team together. Amazing combination. We have Sergei and Clifton, director at the Jubilee Debt Campaign, a UK-based charity. We have Philippa Siegel-Glöckner, founder of Dezona Tsukom, and formerly with the German Finance Ministry and Mieter Gulatti, professor of law at Duke University and a great expert in developing country sovereign debt questions. So, what we want to understand today is I think as an overarching question how the debt situation in developing countries that has been a concern for a long time has become has shifted, has become worse and has become very structurally different with the pandemic. So, we want to understand how the long-term structural questions of over indebtedness, debt relief interact, if you will, with the new challenges coming from the corona pandemic. And we want to discuss big ideas. We want to understand the debt situation in developing countries and emerging economies. We want to understand the policy response and ask where it falls short, where we should where we should come up with new initiatives or change what has been done so far. We want to understand how COVID fits into the bigger picture also with regard to private external debt and also what should be what the role possibly of China and bilateral official creditors will be. Along the way, we want to talk about if debt is a milestone around growth, when we think about the recovery next year, we want to understand how the vaccine changes the outlook and maybe ask from a macroeconomic point of view as well how we should think about debt relief as an expansionary policy. Let me start with giving the floor of your will to Mitu and ask Mitu to give us the broader picture, outline the big questions for us and how you see them, Mitu. What has been done? What is it that the G20 joint framework is achieved and where do we go from here? Help us think through the big picture. All right. That's a big question, Moritz. Thank you for including me and I'll try to give you my simplistic understanding of the big picture. But let me give you a caveat. I am a law professor which means by definition I look at the small picture. I had the misfortune of spending some years in graduate school and economics and I was often told to look at the big picture and at some point I realized I wasn't any good at it so I left and my professor told me don't get buried in the weeds and that's kind of all I was good at. So with that caveat here's how I see the picture and to me it's quite bleak. Much of the developing world and particularly the emerging market world that borrows from the private markets and were focused on private debt was on the brink of or clearly so over indebted before the COVID crisis. But the markets were funding the emerging markets and so this was a problem that we could worry about but did not need immediate solutions. Plus we thought when there are defaults and in 2020 as a result of pre-COVID misbehavior by some of these governments we've sovereign defaults which is more than I can remember in the last 30 years in any given year. So we were already in bad shape but our assumption had been we would have sovereign defaults occur one by one and we had techniques to deal with them one by one. Not the most efficient techniques but we had techniques that had been worked out the IMF, the European authorities, academic scholars who work on this we have been working the last decade or so on these techniques but we had and have no technique to deal with the kind of situation where dozens of countries go into crisis at the same time. We just have not put anything in place and I fear that the two effects, the two big effects of the COVID-19 pandemic of A, lowering growth rates dramatically in much of the developing world and B, increasing debt stocks dramatically in many of these countries are going to result in the next six to twelve months in a dozen plus countries going into a default type scenario and we just have no mechanism to deal with that and if you have no mechanism that's a recipe for disaster. So that's my pessimistic view. I think an optimist might say well you know the markets are continuing to fund anybody who wants at incredibly low rates so you're just unreasonably pessimistic but that's where I would start. Fantastic. Dara, let me come to you and ask you how the pandemic has changed your work with the Jubilee debt campaign and how do you see the situation from on the ground from your experience and your work in that field? Thanks so it's thanks for the opportunity to join you today. I guess I would start by saying we very much meet his view about the situation being a dire one. Our view is that the debt situation in the global south is very serious indeed for perhaps your viewers who don't have such a grounding in these issues. A debt crisis was already spreading across the global south before COVID-19. We saw a big reduction in the indebtedness of developing countries and their debt servicing in the first decade of this century in response to a big round of debt cancellation that happened in response to the previous crisis, the debt crisis which hit countries in the 80s and 90s but unfortunately the west's response to the 2008 crash led to a big lending boom to developing countries so we saw loans to developing countries on the rise pretty much from 2011. Countries also hit by a commodity price crash in 2014 and so what all of this meant was that basically pretty much since 2011 we've seen rising debt levels, rising debt servicing in developing countries and we were already worried about this before COVID-19 hit. We published some research just before COVID-19 in January showing that already there were 64 developing countries that were spending more on their debt payments than on healthcare so we already had a big crisis before the pandemic really hit and then of course the pandemic has essentially it's dramatically accelerated and deepened this debt crisis which was on the horizon. Of course the pandemic has hit all countries economies very badly but for developing countries they've had particular problems they've obviously not only had to lock down their economies in the way that richer countries have they have suffered another commodity price crash, many have suffered a collapse in tourism, many have suffered a collapse in remittances, we've seen the biggest capital outflow from developing countries ever recorded and because their economies aren't trusted in the way that richer economies are they haven't had the same tools available as richer countries to survive the crisis in the way that we have so borrowing at ultra low interest rates for example or being able to do massive quantity easing so as Mitu said it has pushed a lot of countries now very very close to the brink and in terms of the policy response the IMF and the G20 the sort of self-appointed group of most powerful countries in the world they we'd say they should be commended for acting swiftly but unfortunately the response has been very very far from adequate so the IMF has cancelled some debt that was owed to it about 500 million by around 29 of the poorest countries and has also issued a lot of emergency finance to developing countries and the G20 in April created this scheme the DSSI which offered to suspend the debt payments owed to the G20 for around 73 countries and at the same time they called on private lenders to voluntarily mirror that kind of suspension like I said that it was commendable that they acted swiftly but there are some incredibly significant weaknesses in problems with those initiatives the biggest issue with the G20 scheme is that it's suspending debt payments it's not cancelling them so really it's just kicking the can down the road for a much bigger crisis in a couple of years time when there's debt payments come due also countries have to ask for the suspension it's not automatic and there's been a lot of scaremongering about access to private markets which has disincentivised countries that need it from asking for the suspension and the other really big problem is that it only covers the debt payments that are owed to the G20 it doesn't cover debt payments owed to the multilateral institutions the IMF and World Bank but from our point of view the biggest problem of all is it doesn't cover the debts owed to private lenders and which basically means that all of these don't-relief and action that we've seen from the IMF and G20 has effectively been used to kind of bail out private lenders who've lent very high interest rates to developing countries and developing countries are still servicing those debts to private lenders as we speak so the headlines from our point of view is that we need debt cancellation if we are to avert a whole series of incredibly messy and destructive debt defaults we need debt cancellation for countries currently the global debt movement is calling for cancellation of external debt payments for all countries that need it until at least the end of 2021 but we also need a multi-material mechanism as Me Too referred to that enables an orderly resolution of these debt crises so that the debts can be cancelled down to a sustainable level otherwise this crisis is just going to spiral further and further out of control it will be even harder and more expensive to resolve it and critically it will eat more and more into public funds that developing countries desperately need in order to make progress on the sustainable development goals thanks great thank you Sarah Philippa you are in a unique position here in the sense that not only have you worked I think a while ago in the financial administering the finance ministry over developing country but you've also been on the creditor side and have gained some first hand insights into the discussions going on in on the other side of the table if you will in the G20 so maybe tell us about your take on the situation what are the constraints what are the what are people in the room thinking how we solve this situation going forward thank you very much for for having me I mean this has already been really really interesting hearing from Sarah and Me Too um I mean maybe let's take a step back even and think about the biggest situation at the moment um because I mean when you work in the finance ministry in a developed country you also have a lot of issues on your table at the moment right now and I think this may have even been the biggest problem for us a real capacity constraint may sound stupid but at the moment if you're a finance ministry you are in completely unknown territory given your own economy um I mean Germany is issued as much debt in the single months as never before um we shut down our own complete economy we came up with programs that you know I mean we're literally dreamt up in three days and we've never done done before um so even trying to kind of understand what's going on and making space um to think about this hugely complicated issue is already a problem um and the situation is so complex that even for people who work on it the whole time you know you do nothing else I mean Sarah works on this full time um it's very very complex very hard to understand what's actually going on in developing countries and I think you don't have diverging trends because countries that can go to markets and kind of look fine have been doing okay I mean Peru just issued a hundred-year bond um and then on the other hand especially low-income countries uh you have really tight liquidity constraints that prevent them from you know having the most urgent funds so even trying to understand that and trying to understand the scale of the problem and getting a proper picture is quite tricky in times where you work seven days a week 25 hours to kind of keep your own economy going um and then I mean when you zoom in a little bit and you think about okay what you know what's the calculus in in the head of a one of the rich countries that lends a lot of money um I think one of the first issues is actually what me to mention what we always love is when there's a given mechanism because obviously you want to do something um you want to look good you also think it's right and if there is a given mechanism it's very easy you know you can just kind of step in like do your thing look good walk out and that's it while it's a lot more complicated when there isn't a template because then especially when you're a big country you always look around what are g7 doing what are d20 doing and it becomes a very tactical game because you know you think about precedent um obviously you know when you do one thing once you're going to be asked to do it again so then you look at total cost um at the time where you're spending a lot of money in your own economy um that is a thing that borrows you um so the calculus just gets a lot more complicated and then you know you basically get into d20 negotiations that you now have to do virtually so you can't really have good kind of discussions where you sort out stuff quickly in a one-on-one so it all gets a lot more complicated and I think the absence of a pre-existing well-functioning mechanism for this kind of situation is really um what what a lot of people found very very tricky and then obviously you have the long-standing elephants in the room um so when you are a donor from a big country then you're always looking for one donor from one of the emerging markets um and we spend a lot of time trying to get that donor to buy into the Paris club um and to work with us together um maybe for those of you who aren't so familiar I'm talking about China in governments I guess you prefer not to mention that name but I think it's obvious maybe once you spell it out um but so everybody's been working for a long time to kind of get China into the Paris club to to agree on on the mechanisms that we've established um and now you're obviously worried that when you do something unilaterally um and they are not on board um and they are big they're a big creditor um that that may set the precedent that's not good and then the second thing is and I think Sarah mentioned it is obviously private creditors what you learned what to do as a government um and where you're also very worried about I guess public perception is um re-giving funds that then just cross subsidize private um private bonus that's quite a big problem so you start to worry about all these things there's not a pre-existing mechanism and actually you spend 12 hours a day trying to keep your own economy afloat um I think that's explaining a bit of what's going on and then what really is the last concern and that always bugged me kind of thinking about my prior job um in the Liberian Ministry of Finance kind of the last thing you think about is liquidity so how do these countries get cash passed um when I now switch hats and I think about a very poor country that borrows in foreign currency and has a sudden crisis really the first thing and actually kind of the only thing you think about is cash you just need money right now because I mean Liberia I think we had about a month um of of cash in our accounts um and when that ran out or practices got short or the economy had some other kind of cooldown we had teachers banging on the doors of the ministry because we couldn't pay them um so all these international mechanisms and initiatives are far too slow and when western donors come in and tell you you have to do x y z in three months we come back you think well we're broke by then um so that's really what your priority is and then what do you prioritize in your own negotiations you prioritize your negotiations with China um because when it comes to debt structuring and debt forgiveness they are a lot more flexible um you it's it's very hard to kind of get official term sheets and to get it all as kind of officially agreed as with western donors you never know what happens and you may have to pay a higher price but they are very quick um and maybe you have to give them I don't know some mine or whatever but you don't really care because you just need cash to keep the country alive the second thing is western donors are very very hard to understand because they have all these different things going on in the head that I just tried to explain from kind of the other side of the table you sometimes in negotiations really don't know what they want um and again with the Chinese it's a lot more straightforward um when you didn't think about private creditors especially I guess when you come low income country you're really just scared so there's this whole story today that we actually think well maybe there's not so much reason for countries to be scared of private donors or of defaulting because what we see in the past is they can get money from the markets quite well afterwards again um it looks a lot scarier from the other side because you don't have all the fancy lawyers um you don't really have all the knowledge in the background so from private creditors I think you're just basically trying to hide or run away um one of the mouse most powerful initiatives I've seen there to address this even if it's on a much smaller scale than big debt relief is something like the international lawyer scheme um where you get very experienced lawyers from the UK or the US who know the legal regimes to work for the government and and help try and resolve um legal cases um so I think it looks quite different from a full country's perspective I guess in the end you care about debt relief but really the first thing we all cared about was was getting cash fast and what we really struggled with is that the other side maybe didn't really understand this it could even give us predictability as to when funds were coming in um and I guess that's what I would wonder about now um I mean you just have spent from interest rate payments anyway so it's much smaller um maybe if maybe yeah maybe let me come in and and pick up where you left and also there's one um grave mistake I made I should have said at the beginning um we have a Q&A function it's already been very active and I will weave in these questions I keep an eye on and weave them into the discussion so please feel free to um ask us questions along the way um I thought Philippa what you said about like and and me too and Sarah there's there's one question which is like what do we there is it we don't have a mechanism to deal with this problem it is also unprecedented in its as we as we said in sort of its its synchronicity that a lot of countries are in in difficult situations at the same time if we the four of us with the the INED audience um all around the world where to devise that mechanism in this situation what do we want from it I guess we want to sort out the over indebted countries from those who just need a liquidity so from those those who needed real restructuring from those who are okay with liquidity relief um but we also want that mechanism to have some kind of burden sharing between private and public creditors um me too help me design that mechanism you're the lawyer so I think um we have to think of it in two phases uh first let me just say I mean I've already learned an immense amount from Sarah and Philippa I mean that was I'm gonna play this recording for my students uh I learned a lot and I've been working in this business for over two decades but I don't think that we can design sort of the optimal ex ante mechanism I mean that that elephant has left uh the the um the home and you know you you sort of now we have to think in terms of expose solutions and as a practical matter I think what we need now is a mechanism uh to allow us to design a mechanism so if we have let's say a dozen big defaults or countries on the brink of default we don't want creditors all over the world suing all of these countries in every jurisdiction they can find we have to put in place some kind of mechanism that stops this uncoordinated potential litigation so that the experts from you know the finance ministries the fund the bank no matter what our critiques of them may be that they have time to put something in place and Philippa was very diplomatic in talking about Germany and you know how you have a domestic crisis to deal with but from my perspective in the U.S. I feel like you know the Germans and I was part of you know criticizing them during the European crisis sovereign debt crisis in Greece but they've been at the table trying to help all through but I am afraid that institutions like the U.S. Treasury that I have I had always found were front and center in trying to help even if I didn't always like their views they've disappeared and they've disappeared because they have aid a big domestic crisis and B because the U.S. has unfortunately taken a very nationalist turn and I think we desperately need them to be back in the table and the same with the UK I mean in the past we needed expertise to solve these kinds of problems and as Sarah pointed out we potentially have the kind of problem facing us that we have never dealt with maybe there are still some people around who remember how they dealt with the Latin American debt crisis of the 80s whose wisdom we can use but I think in terms of a mechanism we need a mechanism to buy us time for a mechanism to be designed you know we're not going to have sovereign bankruptcy it's just not going to happen now and it's too late we need something much more temporary and when I think the people who have done something closest to this in recent years are the experts in the EU they put in place a mechanism for the entire EU area very quickly after the sovereign debt crisis no maybe it's not optimal but at least they have thought about this on a bigger scale than anybody else but as Philippa said there's not that many of those people and the scale of this potential crisis is you know it is many times larger so I want a mechanism for the mechanism but I don't know what it is can I come in so I think on this fertile it's really important to recognize that some various developing countries mostly led by Argentina but with a lot of other developing countries involved have been trying to put in place a mechanism for the last decade or more Argentina has led discussions in the UN for a sovereign debt workout mechanism and those discussions have advanced quite far but have been systematically blocked by as me too indicated the UK and the US the two countries with the biggest finance sectors the biggest constituencies of private lenders and obviously the biggest vested interest in preventing a fair process for fair bankruptcy process for countries that basically you know the UK and the US we've got a vested interest in perpetuating this enormous power imbalance which exists between private lenders and developing countries so that process is well not just one process a various processes in the UN have been systematically blocked by the US and UK it got as far as agreement on some principles for sovereign debt restructuring which I recommend people Google which set out some of the most important aspects of what a sovereign debt restructuring process should look like I think the UK and US abstained on that vote and it's not legally binding but I think it's really important to recognize that you know this moment has been anticipated and some developing countries did try to fix the roof while the sun was shining and it was the richer countries that are responsible for preventing that for the mess that we're now in there the I agree it would be very hard to construct quick enough the kind of system that's needed in terms of a really proper sovereign debt restructuring mechanism having said that it is something that we need the international community to get started on as quickly as possible we with allies in the global debt movement believe it's possible to build on what's there in terms of the the DSSI or what it's evolving into to adequately deal with this what needs to happen is rich countries need to take responsibility for first being open to that cancellation so currently the initiative is very ambiguous on that cancellation the first step is obviously you know being willing to recognize that that cancellation is needed and but then secondly for rich countries to take responsibility for their private creditors and there's lots of ways for that to be enforced so me too talks about legislation 90 percent of the of the private debts the debts owed to private lenders by developing countries are owed either under English law or New York New York law so actually relatively easily you could put in place some legal protections in those two jurisdictions which would enforce the DSSI or what comes after it and protect developing countries from pernicious legal action by private creditors and enforce debt cancellation agreements which which are agreed multilaterally there are other ways as well for example the IMF and the G20 can require comparable treatment for private creditors if they engage in any debt restructuring negotiations with countries so if they offer debt cancellation to a country they can say you can have this cancellation of our bilateral debts along as there's comparable treatment for private lenders so there's lots of ways to do it rapidly the thing that I would say is being very important in all of this from a debt justice perspective is what is defined as sustainable debt so currently the IMF the IMF definition is about whether or not a country is at risk of default but we don't think that that line in the sand is what's important in relation to sustainable debt what matters is whether your country has enough money to be able to deliver on the basic economic and social rights of citizens can you keep the lights on can you keep the hospitals running can you keep your basic poverty alleviation initiatives running as Philippa said when Liberia has a month's worth of money left in the bank account that you can't run an effective government advancing towards sustainable development goals in that situation we think it's really critical that we agree a definition of debt sustainability that looks at those wider obligations in relation to human rights but I commend that Sarah really interesting what you said and I mean one thing I wonder about you said and I think that's true and acknowledged by everybody kind of this isn't completely surprising like we kind of have seen the debt build up over the years this has been an ongoing discussion as me too said I mean for a long time there were discussions about bankruptcy regime that then didn't happen and so forth question for me is and maybe this is also why I'm a bit pessimistic on this topic is why hasn't it happened why wasn't there progress in good times and for me one of the first questions here really is what's the goal of this do we agree on the goal of this of debt relief you spelled it out what the goal could could look like and probably should look like our country's able to deliver on basic services but I'm not sure that is actually the implicit agreement especially not when it comes to putting money and interests on the table yeah maybe I've become pessimistic on international development seeing it from kind of the inside of the Liberian government but my conclusion has been that international development is really about keeping the system going and and preventing fallout and conflict and breakdown because this is literally what you see there like international donors will never allow that country to collapse probably not also to kind of be controlled by countries they don't like but that's really how about how far it goes you don't really go much further and I think as long as you have that that speaks exactly to you're only going to fix the roof when the country is really bankrupt but it can't pay its bills anymore and you're only going to really fix as much as you need so I think agreeing on the goal is really the first thing and then that comes back to me to comment about finding a mechanism to find a mechanism we really need to set that frame to come together and decide what we want and then take it from there I'm too young to have witnessed the discussions around the big debt relief in the 90s which I guess both of you kind of know the process so I'd be really interested in what you thought drove the momentum there and made that happen so Sarah mentioned legislation and Sarah is exactly right that sort of if you're thinking about the emerging market and developing world almost all of their market based borrowing is in the London and New York markets and under contracts that are governed by New York and English law so that means that those two countries can in effect just by coordinating between the two of them put in place protections now that sounds efficient possibly quick it's not going to happen they're not going to do it it's just I mean US Congress I mean they can't even protect the domestic economy they are not investing resources to help the rest of the world now so we have to think of other solutions so the model for me and this is just out of desperation because I can't think of anything else is not as far back as the 90s but a decade and a half ago which is Iraq for Iraq in 2004 the global community meaning every member of the United Nations Security Council decided to cooperate I mean I realized that today this is astonishing but you know the G20 has cooperated they decided to put in place a global immunity shield for Iraqi oil assets in order to enable Iraq to recover now it's been done once it can be done again but you need whatever magic happened then and I only worked on it at the margins I was a very irrelevant marginal player and I didn't actually work on the immunity shield but it can be done and there are people who who figured out how to get Russia and China and the US and the UK and you know all the members of the Security Council to cooperate to put in place a four-year immunity shield that is the only model I can think of to deal with the kind of situation we might be facing now maybe the markets will continue to fund and expand their funding and we won't need this but I think we need to prepare for it so there's got to be people at the German Finance Ministry who were actively involved in that Iraqi solution because Germany had a lot of debts that Iraq owed to it and Germany basically said you know we're willing to fix this France had it Russia had it they cooperated and many of us don't know how but they did do it once so that's my that's what that's the model I would use to buy us time I could come on that I think maybe on slightly less pessimistic than me to on that so there is actually precedence in the UK in 2010 we passed a law the Debt Relief Developing Countries Act which does just this what we're talking about it was to support the implementation of the last big round of multilateral debt relief the heavily indebted Poor Countries Initiative and what we what this is before my time but what I have learnt was happening was that some vulture funds that we call them private lenders had brought up developing country debt when countries were in debt crisis when the debt was at rock bottom prices and then were using the considerable financial resources that they had available to pursue those developing countries in courts around the world for full repayment on that debt and in order to prevent that from happening and in order to force those private creditors to comply with this important globally negotiated multilateral scheme the UK as one of these key jurisdictions passed a law enforcing well there's an ugly sound this is only on my side maybe same here okay I can still hear maybe we all know there was some big creditor blocked Sarah from saying what she was gonna say I think so this is the power of the vulture funds um okay um yeah I mean is are we clear you're mute okay well I mean I still hear I'm still here this time it's not very pleasant um maybe we all mute ourselves and see if it goes away for a second okay so that seems to have worked at least on my side so there's some feedback somewhere um while we're working on this um very um interesting point there from from Sarah and I also wanted to weave in the first questions here from the Q&A which has been very active um that there is a there's a concern about and I think Mito and Philippa Yorks both mentioned it um why don't we kickstart that mechanism to find a mechanism why don't we implement um the debt is concentrated in London and New York or issued under under these in these two jurisdictions what are the very um what are the obstacles what are the very sort of concrete um obstacles to implementing such a you know standstill um arrangement that gives us time to sort this out um I think you've all from different sides um learned about this is also a question that also came up here by Christopher and Robert and what's potentially the role that institutions like INED or other um organizations can play in getting there I'm gonna unmute myself again I hope we um we go to it of that time thank you and Philippa maybe you want to start so happy to um you'd love me to can probably give a more substantial answer but I'll I'll try I guess very pragmatically um what's what's preventing us from from moving right now is um there needs to be someone who takes the lead um who goes in um if you ask right now I guess in Germany it's a bit hard because we have just about one year left until an election um not sure that's the topic that that you want to start um one year before before then um we are set in the middle of a crisis um with everybody very very busy I'm I'm trying to to do what's necessary um here in the country so I guess I think on both on the political side and on the working out what needs to be done side someone who who steps up is crucial um I still see the the IMF as a key institution there because they have the advantage of having both they have a political cloud they know all the players around the table um in terms of knowing where what that lies they probably have a good sense um and they have been a little firepower behind it um so I would I put my space into that but maybe that's my bias coming from the multilateral system are you I'm I'm a little bit less optimistic uh based on what we've seen from the DSSI and uh the common framework where both of um both initiatives in which I'm sure the IMF played an active role that um they are going to give us something without the leadership of one of the big finance ministries uh but you know this is my um cynicism that they are a political body while having immense expertise uh they won't do anything major without political approval and in particular political approval from their largest shareholder uh they people at the IMF still remember their attempt to put in place a sovereign debt uh restructuring mechanism where the biggest supporter the US just cut them off at the knees and uh they don't want that to happen again so I'm I'm I'm less optimistic I mean sorry Philippa I think that we're all looking to Germany I mean the US I mean we don't even have a an administration and the UK I think they're kind of worried about other things so Mrs. Merkel is I'm kind of hoping she's once again steps up to the plate uh and while Sarah is right the UK did pass that HIPPIC legislation I I'm really not a big fan of its effects I think it did squat um the I think it was designed to do nothing uh but maybe I'm too cynical but regardless legislation's not going to happen in the US it's just not the there is no way to get Congress to act on that so I think we can't hear you right now can you no still not no let me let me maybe just the vulture ones they got upset at Sarah the vulture ones got upset at Sarah no they now they knocked her off completely knocked her off completely um I mean to like in concrete terms what's preventing Congress to act is that interest groups is that general interest groups are very powerful the I mean interest groups are very powerful and uh you know the Congress is right now under the control of the Republicans so I mean the Senate is under the control of the Republicans I mean there is no appetite to do this for the rest of the world so it's not even a question of votes that even the Democrats are not thinking about this and there's nobody at Treasury to push them to do this uh I think Janet Yellen I mean thank heavens that Janet Yellen is going to be the person but I think she's busy with other stuff um I realize the Germans are also busy with other stuff uh but uh I don't know maybe Mrs. Merkel can call Mr. Biden and the world can turn around but I think we need to use the expertise of the EU not just Germany uh they have been the ones who most recently dealt with a gargantuan sovereign death crisis at least they know what not to do and you know they did kind of put Greece back on um track fingers crossed we need to learn from that even if we think lots of mistakes were made Can you hear me now? Yes go ahead yeah okay good um just a couple things to clarify so we wouldn't actually need the U.S. Congress to pass a law in relation to um enforcement data structuring I think it's actually New York as a state um that that all about it's held under I'm sure though that is subject to similar kind of vested interests as Congress in relation to that um I also you know slightly uneasy disagreeing on an illegal question with a distinguished law professor but from our perspective the the Joint Relief Developing Countries Act was effective it was preventative and there were no further cases of vulture funds um developing countries so and I think there has been some research looking at how much money developing countries have saved because of that um but it is but that also it's important to recognize that isn't the only mechanism so the the IMF itself actually has um rules set out already that say um it won't lend into debt crises without requiring debt restructuring from the other creditors um problem is it doesn't apply those systematically and it hasn't been applying um it hasn't been applying those systematically in relation to the COVID response but the IMF itself has considerable power actually to enforce participation of private creditors and to you know facilitate debt restructurings um but yeah I guess I would agree though about the centrality of the U.S. government in all of this like we are seeing this kind of deadlock at the moment where um China uh China has carried a lot of the weight actually in terms of the suspension of bilateral debt payments um but isn't is now not going to move further unless um some weight is now carried by the World Bank and IMF in terms of cancellation of payments to them and and to unlock that of course we need the U.S. government to come on side and take some responsibility for this so so unfortunately I do I think it's quite limited um you know what a country like Germany can achieve you know it would be fantastic if Germany was in charge of all of this but unfortunately it's not maybe can I come in just briefly also on the role of of Germany because I found this quite interesting when I came back and to give you some background I mean I never worked in Germany and for my entire life I left when I was 16 and then I only started here two years ago so I got to know Germany as kind of a foreign actor in developing countries um and then saw the government here from inside and it's quite interesting because the German government has a lot of capacity to do things very well it's very structured it's amazing what you can do in a COVID crisis um it really doesn't appear like that always abroad um I mean in in Liberia for instance Germany was not the first country to I don't know meet a new minister understand what the political economy was in a country I think the swiss were first um so I'm not sure independent of you know what's currently happening here and our electoral cycle whether in in such a situation which is a lot about international politics and you know developing countries politics um a country that doesn't really have such a big tradition of being so present and as political as countries like the UK the US also France who do get very involved um whether whether one can do that I mean maybe I'm underestimating ourselves um but that that seems a very new kind of territory and we are normally not the leaders we look to the IMF and to the World Bank to give us suggestions um then we look at what G7, G20 are doing and then we kind of try and form an opinion we are normally not the ones who come up with a solution and then put everybody else on board. Great I mean weaving in a couple of questions from the audience um there's been um I think it was it was Greg Smith or Robert Owen mentioning that our discussion has been very normative in the sense that you know what should happen um can you give us an idea what you think what will actually happen and what is the outlook uh what events what's the time and what events could possibly trigger um you know new developments in the future so what is like if all of this is probably impossible in the near term what are we looking at over the next year or two? All right I think what will happen I think we will have more sovereign defaults uh Zambia that just went into default uh uh more countries will will uh go over the precipice and what we will see is the attempt to do their restructurings country by country debt instrument by debt instrument and that will take a long time even in the best of scenarios that's very difficult to do and takes a lot of time but usually we we have some time but in the context of the Latin American debt crisis this produced the what is called in the literature the lost decade uh basically a decade of high unemployment uh high mortality infant mortality I mean the the parade of horribles is truly a horrible from a protracted global debt crisis so I think that's what will happen because that we're not going to have uh international leadership on this but I want to be wrong I would love it if Philippa's optimism I'm not sure it was optimism but she was saying you know she hoped that the the fund on its own would take the leadership role that would be fantastic I don't think that they're used to doing that either um but uh yeah I mean what will happen is business as usual we will muddle through really slowly and it will cost us all a lot let me let me for the we're actually getting to the end so I wanted to ask you all sort of for a final statement and maybe weave in an answer to a question that I think is is sort of hovering about this whole discussion um how do you think and and Richard just brought it on on the the Q&A as well how do we think about or how would you her experience and and your expertise in this field how do you think about so the global financial system and how it serves developing countries should there should we rethink um the benefits also from the economic point of view being at the institute for the new economic thinking how much uh foreign borrowing is a boon for development given the regular problems we incur so I don't I don't want you to probably there is it's a complex question but I would be interested how you feel about the the rhetoric and the reality of the benefits of global finance and open capital markets for developmental purposes and in any order you would like to go we have we have a couple of five minutes left so you could um just like a Sarah please um I think that's a really interesting question I think our view our view really is that the global finance system currently just served to extract wealth from developing countries and to perpetuate global inequality um and actually the the importance of private finance markets to development is um seriously exaggerated there there are many low-income countries which have not borrowed in foreign currency bonds in recent years um or and borrowed you know very little from the private sector and some have got really impressive records um both in terms of keeping their debt payments under control while also having strong economic growth and you know increasing public spending so we did some research um on this and countries like the Kino Faso, Cambodia, Madagascar, Nicaragua, Nepal they're all countries which have kept their debt payments low but have had consistently rising public spending per person um that so there does seem to be actually this correlation between um uh having a lot of private external debt and um uh having to cut your public spending um and obviously that relationship is a complex one um it's often because countries borrow from the international finance markets once they use up all of the bilateral debt and multilateral debt that they can get their hands on but we still do think actually that the the importance of that private finance which often tends to be the most expensive is is really over egged um and maybe I just want one sort of final closing point just um because of the I would hundred percent agree with Muti's analysis of the the likely scenario I think the factor that um uh maybe we haven't talked about in this discussion is the extent to which civil society developing countries are really like mobilizing now on this issue a lot of the a lot of civil society organizations um in the countries which had a debt crisis in the 80s and 90s you know have moved on to other issues because those debt crisis has been resolved and a pivot has been having to to happen over the last you know year or two um but a lot of civil society organizations now are really mobilizing starting to pay attention to organized regionally and africa and Latin America and otherwise um and I think hopefully we'll start to see the impact of that strength and global debt movement on uh the positions of countries themselves and also the positions of the accredited countries thank you Sarah uh Philippa me too we have a minute each maybe for um wrapping up your I'll give my minute and your position yeah so I'll give my minute to Philippa I don't have any more bottom line uh uh thoughts and Philippa is the the real economist and real expert I'm a fake economist and now I have to do as well as you that's a lot of pressure I'll try and say something sensible I think there's a fundamental misunderstanding um about what financial markets are good for and what governments or the public sector can do well and can't do well so we just don't need the private market for the provision of liquidity which is essentially you know what you do when you lend money to money to countries um you need the private sector to select or differentiate the good from a bad investment project in the case of lending money to developing countries the private sector isn't doing this because they basically look at IMF DSAs it's hilarious I mean when you talk to to bank analysts what they do is they read IMF stuff all day long so there's no value had from this um and there's ample liquidity in developed markets so I think there's been an over-reliance on private actors for no good reason and I mean basically you get what you asked for I worked at the World Bank 2013 to 15 and all we're pushing was private finance now we have it now we have all the private actors who don't want to give in who go and sue you but yes that's exactly what you get when you have the private market so yes I think you should roll that back I think there should be a larger role for the public sector um because there's a real issue with with hot money flows from private markets that have nothing to do with anything that makes sense and now I'll shut up well thank you very much Philippa Sarah and me too thanks so much I learned a lot um and this thanks to everyone for for joining us today this wraps up to this year's debt talks on INET to watch any of the previous events and this event obviously please visit the INET youtube channel linked to the right of your video player and remains to set for my side everyone has a wonderful and safe rest of 2020 and let's hope that 2021 will be a better year for everyone thank you so much bye