. 2024. Gregory Makoff. Georgetown University Press.
In his autobiography, the outstanding financier William R. Rhodes refers to a phrase engraved on the gold cross pen that Nicaraguan authorities used to sign their debt restructuring with private creditors within the Nineteen Eighties: “Firmar me harás. Pagar jamás.” The phrase translates as “You can force me to sign, but you will never force me to pay” – a prescient warning that proved true.
Gregory Makoff continues Rhodes’ tradition together with his book. He has written the authoritative view of crucial debt restructuring (apart from Greece) within the history of worldwide finance. Makoff is a physicist by occupation and worked for greater than 20 years as a banker, advising developing countries on debt management policy. He then devoted himself to academic activities on the Centre for International Governance Innovation and the Mossavar-Rahmani Center for Business and Government on the Harvard Kennedy School.
Perhaps it took a banker’s transactional experience combined with a physicist’s training in grasping complexity to capture this historical narrative for posterity.
Argentina’s debt restructuring tests the theoretical limits of chaos theory. Henri Poincaré The famous phrase was: “A collection of facts is no more a science than a pile of stones is a house.” Makoff’s feat is to construct his narrative as a thriller without losing the detailed facts appreciated by professionals. I read the book in 48 hours.
Readers will inevitably develop empathy for Judge Thomas Griesa, who oversees the case in his role as a central player. United States District Court for the Southern District of New York. Griesa finally put an end to a decade of “uniquely recalcitrant” behavior by Argentina by issuing a legal interpretation that prevented Argentina from paying interest on recent bonds before it had paid its creditors the amounts owed under a previous debt restructuring.
The creator avoids a simplistic hero-versus-villain narrative. Makoff shows how court cases were guided by rationalized self-interests on either side and deterministic properties determined by the initial conditions of international loan agreements. Given this pragmatic and apolitical approach, investors, academics, and policymakers alike will find value in it.
For investors, Makoff is a superb reminder to read the terms of their bond documentation. Only by understanding the teachings of history can investors navigate the present generation of sovereign debt crises. The creator explains how the unlucky decision not to incorporate exit permits in the unique debt restructuring allowed some minority creditors to pursue an ultimately successful holdout strategy.
Makoff is an actual eye-catcher for college kids and professors because he writes each a scientific and a practical history. Much has been written in academic circles about how government bond markets work in theory. It took a practitioner like Makoff to clarify how the world is, not the way it needs to be.
For policymakers, this historical narrative comes at a time when newly proposed reforms are being considered in each multilateral (Global Sovereign Debt Roundtable) and legislative (proposed laws in New York State) forums. The international bond market could be a positive force in developing countries, enabling countries to navigate from their present to their future by frontloading investments. As scholars Barry Eichengreen reminds us, nevertheless, that sovereign debt is a ‘Janus-faced’ asset class. If mismanaged, government bonds can default and change into an arduous process that should be managed through an evolving debt settlement architecture (sovereign states cannot declare bankruptcy).
is ultimately the genesis of enhanced collective motion clauses (CACs), a modernization of international loan agreements that bind majority debt restructuring agreements to minority parties. This approach avoids a repeat of the contentious creditor dynamics that emerged from Makoff’s Argentina saga. As the U.S. Court of Appeals for the Second Circuit noted in its review of Judge Griesa’s ruling, “It is highly unlikely that any future sovereign will find itself in Argentina’s predicament.” Thanks to CACs, one can hope that this will probably be the last book needed to explain a decades-long debt restructuring.
