Aurelia Butler

Jay Newman was a senior portfolio manager at Elliott Management and is author of the finance thriller Undermoney.William S. Burroughs could have been thinking of sovereign debt investors when he quipped that “sometimes paranoia’s just having all the facts.” The antics of the New York State legislature are a case in point.Out of nowhere, a package of proposed bills that would dramatically undermine the enforceability of sovereign debt contracts governed by New York law are wending their way through the New York State Assembly and Senate.This mischief appears in three draft laws. First, the so-called “orderly restructuring” bill (A2970, S4747) would cap creditor recoveries at an (indeterminate) amount equal to what the US federal government might have received had it been a creditor — and retroactively reduce existing judgments. Here is the ostensible purpose:. . . The legislature finds that it is a longstanding policy of the United States and the state of New York, as the world’s leading financial center, to support orderly, collaborative and effective international debt relief for developing countries with unsustainable levels of debt. Debt distress, debt crises, and disorderly default are associated with unacceptable human suffering, economic decline, and financial market and payment systems disruption. Moreover, debt restructuring is ineffective and does not lead to sustainable outcomes when it is not perceived as equitable or legitimate by stakeholders in borrowing and lending countries. Additionally, public creditors are unlikely to participate in debt restructuring initiatives unless there is fair burden sharing among all public and private creditors, which is essential to the legitimacy and effectiveness of debt relief initiatives. . . . Second, the Assembly is considering a comprehensive regulatory scheme that would empower New York state courts to supervise sovereign debt restructurings (A2102) while giving debtors the exclusive power to propose a restructuring plan. For good measure, that law would affect the entire existing sovereign debt stock, since it would apply retroactively and explicitly override the bond contract. Third, Assembly bill A9317 (which has not yet been reintroduced in this session), would reinvigorate the antiquated, discredited notion of champerty by requiring courts to determine a creditor’s subjective intent and creating a presumption of wrongful purpose when a bondholder has any history of purchasing sovereign debt at a discount or declining to participate in a sovereign restructuring.The stated motivations make little sense. One sponsor objects to so-called “vulture funds” buying Puerto Rican debt. But the bill applies much more broadly: not only to unincorporated territories, but also to foreign countries, provinces, and states (perhaps anticipating debt problems that New York might experience if current trends continue).Putting aside serious questions of state and federal constitutionality — and the risible notion that New York state courts are competent to oversee sovereign debt restructurings — the threat that these proposals might be signed into law needs to be taken seriously. Constitutional challenges take years (and cost millions of dollars in legal fees) to resolve. If anything like these bills is enacted, the damage will long since have been done.Since over half of all sovereign bond contracts expressly rely on New York law and New York courts, with the stroke of a pen, the proposed changes would make it impossible to enforce those contracts in accordance with their terms — upending both the primary and the secondary markets for New York law bonds.For decades, borrowers and lenders have expressly chosen to have their agreements adjudicated in New York, under New York law, because New York has been the gold standard: unequivocally protecting property rights, recognising the sanctity of contract, and ensuring impartial, predictable, and consistent administration of justice. If those foundational principals change, underwriters, bond buyers, and issuers will flee. It won’t take long for more attractive jurisdictions, like London, to pick up the slack, causing New York to lose business — and tax revenue.In addition, New York politicians can expect a wide range of unintended consequences: US pension funds and individual investors will suffer losses, and New York’s status as one of the world’s foremost commercial centres will be eroded. It’s not a stretch to foresee a negative impact on the attractiveness of the US dollar as a reserve currency — a level of instability that is particularly ill-advised given the willingness of China to wield sovereign debt as a coercive tool of foreign policy.Given that these dramatic changes seem palpably absurd, you’d be forgiven for wondering what’s happening behind the curtain of lobbying, influence peddling, and political contributions. Since New York state would be a certain loser, who would benefit? Who really wins? Perversely, the biggest beneficiaries of the degradation of America’s premier financial and commercial centre as a bastion of contractual and property rights will not be sovereign borrowers, much less their citizens. Rather, the biggest beneficiaries would be America’s enemies. China, Russia, Iran, Cuba, and North Korea are intent on degrading America’s status as a bulwark of the rule of law and undermining the dollar as a reserve currency. That all fits neatly with a movement — already well under way — to develop alternatives to the US dollar for settlement of international financial transactions and trade. And China, a major creditor to the world’s poorest countries, has a strong interest in undercutting the value of claims owed to other lenders. It’s enough to be suspicious of who is really driving this change. Sovereign lending is risky enough without officious meddling that upends longstanding legal frameworks and expectations. More

WASHINGTON (Reuters) – Women have held just 12% of the top jobs at 33 of the biggest multilateral institutions since 1945, and more than a third of those bodies, including all four large development banks, have never been led by a woman, a new study released on Monday shows.Five of the bodies have only had a woman president once in their history, and that includes the current head of the World Trade Organization Ngozi Okonjo Iweala, according to the report prepared by GWL Voices for Change and Inclusion, an advocacy group made up of 62 current and former senior women leaders.The study, to be released during this week’s meeting of the United Nations Commission on the Status of Women, called for proportional representation of women at every level of multilateral organizations, from field offices to headquarters, as well as in secretariats and governing bodies.”The truth is that numbers matter,” said Maria Fernanda Espinosa, a former Ecuadorian foreign minister who served as president of the U.N. General Assembly from 2018-2019. “We are 50% of the world’s population so it’s a demographic justice thing, to start with,” she told Reuters in an interview on Friday. “But I also believe that women bring this combination of leadership, wisdom and empathy, and sometimes, an even greater understanding of what is happening in the world.”Since 1945, the 33 institutions studied have had 382 leaders, but only 47 were women, the report showed. And despite recent progress, only one-third of the institutions are currently headed by women.GWL Voices said it would release a more extensive version of the report in September that would also look at the senior management teams and governing bodies of the 33 institutions. It said it was pushing for governance reforms that could “accelerate the transition to gender-balanced leadership.”The report listed 13 institutions that have never been headed by a woman since the end of World War Two, when most of these bodies were created, including the World Bank, the United Nations, the International Atomic Energy Organization, and the Food and Agriculture Organization.Espinosa said it was disappointing that the United States, which is the largest shareholder in the World Bank and has historically picked its president, last month nominated a man, former Mastercard (NYSE:MA) Chief Executive Ajay Banga, for the job, despite urgent calls from her group and other World Bank member states to chose a female leader.Espinosa said she supported having someone like Banga, who was born and educated in India and spent much of his early career there, at the helm of the World Bank, but there were hundreds of women with similar background and qualifications. More

The ECB has raised rates by 3 percentage points since July and flagged a 50 basis point increase for March. It has left the door open to subsequent moves, which it said would be decided on “meeting by meeting” and be “data dependent.” Holzmann, an outspoken conservative – or hawk in policy terms – however said that based on current trends, he would favour 50 basis point moves in March, May, June and July. “I expect it to take a very long time for inflation to come down,” Holzmann was quoted on Monday as saying. “My hope is that within the next 12 months we will have reached the peak of interest rates.”The four steps advocated by Holzmann would take the deposit rate to 4.5%, well above the 4% peak rate priced in by markets, a level no other policymaker has so far advocated in public. “If we want to get inflation back to two percent in the foreseeable future, we have to be restrictive,” Holzmann said, arguing that only a 4% deposit rate will start restricting growth. Holzmann also called on the ECB to accelerate the reduction of the bank’s balance sheet, possibly through ending full reinvestments in its Pandemic Emergency Purchase Programme (PEPP) earlier than planned. All debt maturing in the PEPP scheme is now set to be fully reinvested into the market through 2024. More

Xi Jinping has called Vladimir Putin his best friend. But now the Russian leader is in urgent need of help from China. Putin’s army is bogged down in Ukraine and running short of ammunition. Should Xi prove that he is a friend indeed by supplying Russia with weapons? China’s decision will say a lot about how it sees the future of the world. A choice to supply Russia with weapons would suggest that China believes that intensified rivalry with the US is unavoidable — and perhaps desirable. By contrast, a decision not to give Russia weapons would indicate that China still believes that tensions with the US are manageable and that globalisation can be saved.Influential voices in Beijing fully understand the risks of supplying Russia with the crucial munitions that Moscow’s forces are running short of — such as artillery shells and drones. In the Financial Times last week, Zhou Bo, a former colonel in the People’s Liberation Army, wrote: “If Beijing takes Moscow’s side in the conflict, then we are already in the dawn of the third world war.”Put like that, a Chinese decision to supply Russia with weapons sounds inconceivable. And yet the US government believes that there is a serious debate under way in Beijing — and that China may ultimately make this fateful decision. The reason that Xi might decide to dramatically increase support for Putin goes back to the “no limits” partnership announced by the Russian and Chinese leaders in February 2022 — three weeks before Russia launched its full-scale invasion of Ukraine. More important than the announcement of the partnership was the shared analysis that underpinned it. Putin and Xi laid out a common understanding of the world. They both see the US as the central threat to their countries’ ambitions and political regimes. Fighting back against American power is the common task that unites them. Xi has visited Putin more than he has visited any other world leader. The worst-case scenario for him would be the fall of Putin and his replacement with a pro-western leader. That still feels like a remote possibility. But, even if Putin remains in power, a humiliated and weakened Russia would make the US look resurgent and China more isolated. Some in Beijing argue that once Russia had been dealt with, America would turn on China.There are two further reasons why China might risk propping up Putin. The first is that Xi’s closest advisers might have more faith than Zhou that China can control the escalation risk. They will argue that, once Washington understands that Beijing will not let Moscow lose, the west will push Ukraine to make a peace settlement on terms acceptable to Russia.The second reason why China might risk a global conflict is bleaker. Nationalists in Beijing may believe that outright confrontation with the US has already begun. The CIA says that Xi has already instructed the Chinese military to be ready to invade Taiwan by 2027. Joe Biden has said several times that the US would defend Taiwan, if it was attacked.Of course, there is a difference between China developing the capability to invade Taiwan and making a firm decision to attack. But if the gloomier western analysts are correct — and China is moving closer to invasion — then it would make sense for Beijing to support the Russian war effort. If the west has to keep pouring military resources into Ukraine, it might have less available to defend Taiwan.However, the downside for China of supplying Russia with weapons is also clear. The anti-China mood in Washington, already very powerful, would go into overdrive. Every form of pressure that the Americans could think of would be exerted on China. The restrictions on technology exports that are already in place would be supplemented by much broader sanctions.Beijing would also lose any hope of driving a wedge between the EU and the US. Chinese military support for Russia would be seen as a direct threat to the security of Europe. EU restrictions on trade and investment ties with China would surely follow swiftly.The Chinese know that western corporations and consumers are too dependent on them to attempt a complete economic decoupling. But if trade with the west dropped by even 30 per cent, the results would be felt in higher unemployment in China — which would worry a government that is acutely sensitive to displays of popular unrest. For that reason, China may choose an uneasy compromise. It will continue to present itself as a neutral peace broker in Ukraine, assuring visitors like Germany’s chancellor, Olaf Scholz, that it has no intention of supplying Russia with munitions. Meanwhile, it may attempt to funnel weaponry to Russia indirectly, perhaps through third countries such as Iran or North Korea. The president of Iran, Ebrahim Raisi, visited Xi in Beijing last month — the first visit to China by an Iranian president in 20 years.But a policy of covert or deniable Chinese military support to Russia is no magic bullet for Beijing. It might be too restricted to turn the tide of the war in Putin’s favour. And it would still be vulnerable to detection by the US. Indirect Chinese military support for Russia could ultimately be a circuitous route to the same destination: direct confrontation with [email protected] More

LONDON (Reuters) – Britain’s proposals to loosen capital rules for insurers will increase the chances of an insurance company failing by 20% in a given year, the Bank of England has told lawmakers, reiterating its caution over the government’s plan.Following Britain’s departure from the European Union, its finance ministry has proposed easing capital requirements for insurers to unlock billions of pounds for investing in infrastructure to boost the economy.Easing the so-called Solvency II rules inherited from the EU is seen as a key “Brexit dividend” for the financial sector, and the ministry overrode warnings from the Bank of England, saying policyholders would still be protected.The BoE looked at the impact of the government’s plan to ease the risk margin, a capital buffer life insurers must hold to move policies to another insurer in the event of a collapse.BoE Governor Andrew Bailey said in a letter dated Feb. 22 to parliament’s Treasury Select Committee, published on Monday, that “in the round” over a one-year period, the estimated capital release of 14 billion pounds ($16.80 billion) could lead to an increase in the annual probability of failure of approximately 0.1 percentage points.”This means that over a one-year period… the probability that a life insurance firm would hold sufficient capital to withstand the solvency standard stress level will be 99.4% when compared to the current level – a relative increase in the probability of failure of around 20%,” Bailey said.If the BoE’s proposed reform had gone ahead, which advocated easing the risk margin by less than the government proposes, then “less than half of this increase would have occurred”, Bailey said.”If a future failure occurs, it would be difficult to predict the quantum of losses, nor is it certain that it would be limited to a single firm,” Bailey said.The BoE will implement the ministry’s proposed reforms of Solvency II if approved by parliament, Bailey said.($1 = 0.8335 pounds) More