Tuesday, April 5, 2011

The Bond's Eye View of the Ivory Coast

I joked a while back that any statement in the business press that something is good or bad needs to be followed with an implicit "for bondholders." But it's not really a joke. Here's the Financial Times with the view from the bonds of the civil war in the Ivory Coast:
[Laurent Gbagbo's] generals are negotiating a ceasefire at pixel time while the French think he’ll probably leave Ivory Coast within hours, after a heavy cost in bloodshed. But a brand new day for the Ivorian state?

If you’ve been watching the levitating prices on the country’s (defaulted) 2032 bond, you might think that. Having been rallying for some time, the bond is now priced more generously than before a $29m coupon payment failed in January... This is quite some faith in the ability — willingness — of Gbagbo’s successor, Alassane Ouattara, to resume debt service.
There it is: A new day for the Ivoirian state = resumption of debt payments.

But there's a more serious point here, too. The only people in the rich world who have both an interest in what happens in the Ivory Coast, and the resources to act on it, are the owners of Ivoirian government bonds.

Of course this isn't strictly true. There might be foreign owners of private Ivoirian assets. But in fact there doesn't seem to be many: Of the country's $11 billion in external debt, $8.5 billion, according to the BIS, is public and all the remaining $2.5 billion private debt is publicly guaranteed. And of course there are firms and speculators in the cocoa industry, but they aren't going to as interested in the Ivory Coast specifically, and more importantly, they don't have the same access to the peak institutions of capitalism. It's the Financial Times, not the Commodities Times or even the International Trade Times. So it's perfectly natural for the FT to take the bond's eye view; to a first approximation, the bondholders are the representatives of the capitalist class as a whole with respect to the Ivory Coast.


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