DANIEL.DAVIES at flemings.com wrote:
>>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.
>Logistics are only part of the problem. In bondworld, you've got many
>holders who could easily sell or make separate deals. They don't know
>each other. In bankworld, you've got 20 major creditors who all know
>each other, would find it hard to sell, and can't make separate
>deals. It may be good for the debtors that their creditors speak with
>many voices; as Citibank's chief negotiator with New York City during
>its mid-1970s fiscal crisis said "we do have a certain noblesse
>oblige [sic] or tight and firm discipline. So that we could marshal
>our forces, and when we spoke to the city or the unions we could
>speak as one voice...." I guess state institutions like the IMF have
>to step up their role as the collective creditor.
>Doug
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I think this is still part of the myth -- the Russian experience shows that this is a problem in principle but not in practice. Although there were vast numbers of holders of GKOs, the steering committee formed quite quickly, led by the big market makers. And after Deutsche Bank and Chase settled, everyone else was basically forced into line. Even Credit Suisse (the biggest m-maker in Russian debt for years) wasn't able to cut its own deal outside the process. The big banks speak with one voice, even when they don't. Similar in Indonesia where Pen Kent (my old boss at the BoE, sort of Brit Rohatyn chap) went over there to sort things out.
That leaves the genuine troublemakers -- bondholders who buy up distressed country debt specifically in order to try to be bought out at a favourable price. What's needed is a gentlepersons' agreement among bond brokers to "cold-shoulder" known troublemakers like (naming no names) the Dart Family Trust. (BTW, I'd give good money to know the terms of the Darts' settlement with Brazil).
The last time I did any serious work on this, the banks were implacably opposed to any role for the IMF in work-outs. But things may have changed (in fact I rather suspect they have).
dd
BTW, the UN-lurker-guy is absolutely right as far as I can see. The IMF is acting like the classic Pointy-Haired-Boss type. They're very worried that the plug will be pulled on them as an institution, so they're showing what would be called classic displacement activity if it happened in a human being -- showboating displays of strength, inexpert Machiavellianism, combined with protestations of virtue. I'd diagnose a course of institutional Prozac.
PPS: If anyone wants to read an incredibly dull and dated analysis of these issues, the G10 report on Mexico is still clogging up the Net at http://www.bis.org/publ/gten03.pdf
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