>>Surely the main
>>thing we've learnt from the last few crises is that bondholders don't
>>really exercise any control at all?
>Ecuador's possible default on its Brady Bonds - they're almost
>halfway through a 30-day grace period, with a deadline of Sept 28 -
>is interesting in this regard. The IMF apparently wants to make a
>test case of Ecuador for its new "bail-in" strategy - i.e., making
>private creditors take a hit when a country gets into trouble. It's
>urging Ecuador to renegotiate terms with the holders of its bonds -
>but there are just too many of them for this to be possible in a few
>weeks. Compare this with the 1980s LatAm debt crisis, when William
>Rhodes of Citibank and a relative handful of his colleagues could
>restructure debts quietly and fairly quickly. [...]
ooohh!
Actually, I regard this theory as basically an urban myth, put about by people like Dallara of the Institute for International Finance and his sort.
It's entirely possible to communicate with all bondholders, wherever they may be, by using the services of the two big securities depositories (Cedel and Euroclear), who hold settlement for pretty much the entire Brady market. Ecuador could make offers to the bondholders and get their responses quite easily. In Brady Bonds (as opposed to Eurobonds), it's true that there is no real provision for majority voting on a renegotiation, but that's a specific curiosum of the Brady market. Certainly, it would be possible to renegotiate within the period during which the Ecuadorean bonds are covered by US T-Bond collateral, so we needn't worry about any poor old grannies who depend on the coupons for catfood.
The only problems with renegotiating bonds are:
1. Cedel and Euroclear won't give up the names of the bondholders, because a lot of them may be avoiding tax.
2. Sovereigns don't include in their bond documentation the usual provisions which apply in the event of default -- the standard IPMA clauses for corporate bonds.
Both of these are conscious decisions, imposed on emerging market borrowers by investment bankers who want to make it as hard as possible to default, rather than facts of nature imposed by the universe.
> There are a few
>complications to the Americanization of global finance.
>Doug
This is very true, but the complications are vastly exaggerated by people with huge vested interests. I was beating my head against this particular brick wall in 1995, and the depth of self-serving doublethink among these people is quite breathtaking.
dd
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