Person: Makoff, Gregory
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Makoff, Gregory
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Publication Sovereign Debt Restructuring with China at the Table: Forward Progress but Lost Decade Risk Remains(Harvard Kennedy School, 2025-01) Makoff, Gregory; Maret, Théo; Wright, LoganSovereign debt restructuring deals have not been smooth sailing over the last few years. They have moved slowly, been marked by bickering between China and G7 stalwarts, and the outcomes have been inconsistent. Recent policy innovations, however, have successfully accelerated the pace at which deals are being completed —that’s the good news. The bad news is that China remains highly reluctant to grant permanent debt relief. Deals are coming faster, but debt relief may be insufficient to avoid repeat restructurings. This is deeply unfortunate in the post-Covid-19 context, with many lower income countries at or near debt distress (World Bank 2024 at 18). The first part of this paper explains this recent history. We explain how the architecture of sovereign debt restructuring has evolved over the last four years in response to China’s objections to the traditional rules and procedures of the Paris Club and the IMF. After a short introductory section on China’s overseas lending boom, we review disputes over the procedures applied in the restructuring of the debt of Congo Brazzaville (2018–2019), Suriname (2021–2023), and Zambia (2020–2024). Then we review the policy innovations announced between 2022–2024 to resolve these disputes. We suggest that faster motion in recent debt restructurings is a direct result of this successful policy process, China’s pressure leading to positive procedural changes. The latter part of this paper addresses a remaining challenge: China’s general unwillingness to grant permanent debt relief. This creates the possibility that the international restructuring architecture will be run to prefer debt maturity extension and avoid granting debt relief. This risks a repeat of the “lost decade” of the 1980s, when write-downs were systematically avoided, and many countries were trapped in serial restructurings until debt relief was finally granted in the Brady plans of the 1990s. We discuss this topic in two parts, first addressing China’s complex institutional setting, then explaining China’s policy, legal, and economic constraints to granting debt relief. We conclude by recommending that China establishes a sovereign debt asset management company to centralize management of its problematic sovereign loans, an idea borrowed from the playbook China used in the 1990s to clean up its commercial banks. The idea would be for the new agency to take over all the problematic loans from China Development Bank (CDB) and China Eximbank. This would provide significant institutional efficiency, allow better high-level oversight, facilitate superior data management, and allow China to more flexibly respond to the exigencies of future international sovereign debt negotiations.Publication Advice for New York State and International Policymakers Regarding Sovereign Debt Reforms at the State Level(Mossavar-Rahmani Center for Business & Government, 2024-09) Makoff, GregoryThe possibility of sovereign debt legislation at the state level has been an underexplored area in sovereign debt policy—that is until the New York State Legislature became the center of serious contention over three proposed bills during the last two legislative sessions. The bills pitted social activists seeking to help relieve sovereign debts against bond-market organizations claiming that the bills would drive business out of New York State and raise the cost of financing for developing countries. Rhetoric flew and lobbying was intense. Yet a constructive outcome was achieved: two of the bills were dropped while the New York Senate passed the third bill after incorporating significant changes required by the market. The purpose of this working paper is to recount the legislative history of these three bills and to use their differing features—and outcomes—to draw policy rules regarding the appropriate scope of sovereign debt reforms carried out at the state level.