Venezuela
Venezuela’s opposition sets out debt restructuring plans
Creditors caught in crisis would be treated equally if Maduro is ousted, policy paper states
FT (contenuto riservato)
In 1983 the late Supreme Court chief justice William Rehnquist gave a seminal speech hailing the “
lawyer-statesmen” that combined the law and public mindedness to build the United States, and lamenting the legal profession’s grubby commercialisation. Today there are few lawyers that fit Rehnquist’s lofty ideals, but
Lee Buchheit is arguably one of them.
Although largely unknown outside a narrow circle of government officials, lawyers, academics and often irate hedge fund managers, Buchheit has left a discrete but indelible mark on the global financial system over the past three decades. The lawyer has represented nearly every country that has gone bankrupt since the 1980s, sparring with aggrieved creditors and cajoling stricken governments back to fiscal health — and in the process almost single-handedly building up an entire
field of international law.
In 2012 he battled through cancer and chemotherapy to engineer Greece’s debt restructuring — the biggest in history. And now, the biggest test yet lies tantalisingly on the horizon: Venezuela, and its tangled
$150bn pile of loans, bonds and financial liabilities.
Fittingly, we meet at the grand Morgan Library in midtown Manhattan, the former residence of the legendary banker John Pierpoint Morgan. In 1907 he famously halted one of the first modern financial crises by locking the central participants in his opulent study until they reached an accord. Buchheit gives me a small tour of Morgan’s quarters, filled with the medieval manuscripts, tapestries and objet d’art that the JPMorgan founder lovingly collected through his life.
I jokingly ask if Buchheit ever solved a debt crisis by locking creditors in a room. He cackles a denial, but he clearly likes the idea. After all, the stakes can be immense, as he points out:
The difference between doing a sovereign debt workout well and doing it badly will have profound implications, not only on the creditors but on the country. Do it badly, and the crisis persists for years, sometimes for decades... From the standpoint of a lawyer advising one of these countries you have an opportunity probably to influence, for good or ill, the lives of more people more significantly than almost any other type of legal practice.
Unlike with corporate bankruptcies, there is no legal framework to guide countries in financial distress. And what little there is, is largely a product of Buchheit’s creativity over the years, ranging from weighty tomes on the subject to a Dr Seuss-style poem on how to negotiate payment default clauses:
The New York Times describes him as the “philosopher-king of sovereign debt lawyers”, and Adam Lerrick, an adviser to the US Treasury, once said “everyone in this field is a DOB - disciple of Buchheit - whether they like it or not”. Mitu Gulati, a law professor at Duke University and frequent Buchheit collaborator, tells me that "he is, simply put, the field of sovereign debt. It has begun and ended with him for over three decades".
The list of countries that he has helped restructure their debts is as long as a bad year, taking in Mexico, Guatemala and the Philippines in the 1980s, Ecuador, Peru and Russia in the 1990s, Iraq, Uruguay and Belize in the 2000s. Since 2010 he has advised a murderer's row of pathologically debt-troubled countries: Jamaica, Argentina and, of course, Greece. And I want to hear some war stories.
In Iraq’s case, that is literally true. Buchheit did most of his work in London and New York conference rooms, but he had to fly to Baghdad soon after the 2003 invasion to meet with officials there to discuss how to secure Iraq the debt relief it desperately needed, against a backdrop of a mounting insurrection against the US occupation. But the hairiest situation was the flight in, when the plane had to do a corkscrew dive into Baghdad to avoid anti-aircraft missiles, “My companions on the trip who had indulged in breakfast lost everything but their regrets,” Buchheit recalls with a chuckle.
Buchheit last month
retired from Cleary Gottlieb Steen & Hamilton, the white-shoe law firm that has been his home since 1976, so I ask him what he is up to lately. Cleaning out his “Augean Stables” office has taken him days, he admits. Telling him of the mantra of Marie Kondo, a trendy decluttering consultant, I ask whether there was anything that “sparked joy” when he packed up his belongings. “Robin,” he deadpans, “I’m a sovereign debt restructurer. There’s nothing in my office that sparks joy to anyone.”
He did, however, keep an extensive file entitled “vulture funds”, a thick wad of press clippings and research on the hedge funds that have become his nemeses over the years. Some of them have argued that Buchheit’s aggressive legal tactics undermined the financial system by gutting creditor rights, imperilling the willingness of investors to lend money to developing countries.
This is an unfair characterisation, Buchheit insists. Some countries, when they are forced to restructure anyway, are tempted to “bring the sword of the Lord to the creditors”, but that this is often a short-term view, he argues.
When that happens, that’s the kind of thing that the market reacts very badly to because they see it as opportunistic. I don’t like to encourage that sort of behaviour and try very hard not to. And of course, in the back of your head is the thought that this is simply unhealthy for the overall system.
His experience in batting litigious hedge funds on behalf of stricken countries might still come in handy, as Buchheit is far from spending his twilight years at his upstate 18th century farm. His former firm represents Venezuela’s biggest bondholder group, but Buchheit was in May
hired by the US-recognised opposition government led by Juan Guaidó, about advising on a future debt restructuring for the country
The political situation remains chaotic, and Buchheit fears there is a risk that the incumbent president, Nicolás Maduro, hunkers down and turns Venezuela into a giant Cuba. On the other hand, a new Guaidó-led government could potentially unlock billions of dollars worth of aid and let the country tackle its estimated $150bn debt load, which is currently largely in default and in stasis, due to US sanctions that prevent its resolution.
It could easily turn into the messiest government debt restructuring in history, surpassing even Argentina’s decades-long legal battle with creditors. But Buchheit is optimistic that the US government could use the “
nuclear option” of a presidential executive order ringfencing Venezuelan government assets from seizure to coerce creditors into a swift deal. Whatever happens, he says he would never represent the government led by Maduro, given its extensive human rights abuses:
I have viewed my professional career a little bit with the sense that I like to think of the lawyer as the paladin, as the champion, and to be the champion for a distasteful cause never struck me as something to be desired.
Buchheit’s view of lawyers as paladins might strike anyone who has had to deal with the legal profession as odd, but Cleary Gottlieb’s former senior partner is cut from a somewhat different cloth than many of his peers.
The son of two military officers, he first planned to be a soldier. He enlisted in the Reserve Officer Training Corps, on the grounds that it allowed him to choose his degree subject, while West Point emphasised engineering. Oddly, given his planned profession, he chose Middlebury, a venerable liberal arts college in Vermont, and majored in — of all things — philosophy. Spinoza, the great Enlightenment thinker, was his favourite.
When ill health meant he had to leave the army, he initially planned to become an academic philosopher. A prescient professor advised him to first study something more sensible, such as the law, so Buchheit enrolled at the University of Pennsylvania, and then studied international law at Cambridge’s Trinity College, writing his thesis on the legitimacy of secession groups.
When he started at Cleary Gottlieb’s London office, he was bluntly asked “loans or bonds”, and knowing little about either, replied “loans”. It was a fortuitous choice, because it prepared him to work on Mexico’s 1982 loan default, which ushered in the Latin American debt crises of the 1980s, and made him the go-to person when Asian countries started tottering in the late 1990s.
"Asian countries found it profoundly shameful to have to be going through the [restructuring] process, whereas some of the Latin American countries, I think, thought it rather entertaining,” he observes. But the one common denominator for all countries facing a mounting debt crisis is “pathological procrastination", rather than defaulting willy-nilly:
The common perception is that emerging market sovereigns are looking for an excuse to default on their debt, and, in fact, probably exactly the opposite [is true]. They delay it far beyond the point that anyone would think the situation is reversible. It is a testament to the belief in the efficacy of prayer.
Mindful of Buchheit’s view of lawyers as “paladins” I raise the late justice Rehnquist’s views on lawyer-statesman -
a subject Buchheit once gave a lecture on. Would he count himself as one?
No, he insists, pointing to the narrowness of his chosen field. And unlike prominent lawyer-statesmen like William Seward, Henry Stimson, Dean Acheson or Cy Vance, Buchheit has never flitted between private practice and public service. He has certainly never held any high office, as other prominent lawyer-statesmen have, he points out:
If you look at the people who are often put on the list of lawyer-statesman you will find a career more varied than mine. These are people who often go in and out of government service in this country... The Cy Vances of the world managed to merge legal practice and public service together, and I’ve not had that.
Nonetheless, Buchheit has in practice been a public servant for most of his career, albeit for a variety of countries. In the process he has helped birth a thriving field of public law policy. And one of the primary qualities Rehnquist argued that a lawyer-statesman must possess — the ability to write and speak eloquently — is one that he possesses in abundance. Buchheit’s ability to turn a phrase is astonishing, and his sonorous, stately voice is a delight — and oddly reminiscent of Morgan Freeman (
you can hear it on this Alphachat episode from 2017).
His radio-friendly voice luckily survived a nasty bout of throat cancer he suffered in 2012. This forced Buchheit to undergo a gruelling course of chemotherapy in the midst of trying to arrange a €200bn debt restructuring for Greece that wouldn’t blow up the eurozone.
He admits the pain was so “incandescent” that at one point he warned his colleagues that there might come a point where he would be under so much medication that he could no longer trust his own judgment. “When that time approaches,” he told them, “I’m going to send you an email and say, from here on out you may get emails from me, but feel free to ignore them because I can’t promise you that I shall be thinking clearly.”
Luckily, the restructuring went smoothly. By the time the fateful email was sent, Greece was already well along the path towards a record-breaking debt workout, and Buchheit could read about its success in the FT from his hospital bed on March 9, 2012:
His favourite job was on behalf of the Philippines and Corazon Aquino, who had inherited a massive mountain of debt from Ferdinand Marcos. When the country later introduced a 500-peso note Buchheit joked to Jose Fernandez, the central bank governor, that after all he had done for the Philippines, surely his picture should adorn the note?
And God bless him, without missing a beat he said, ‘Lee, you know how on your currency under the president’s picture there is the legend In God We Trust?’ Yes sir, I said. He said: ‘If I put your picture on a 500 peso note the legend would be God Help Us.
I wonder whether the process of resolving government bankruptcies can ever become less of a painful, ad hoc mess that seems to be the norm. Buchheit argues that lawyers nowadays have far more tools at their disposal than they did when he was thrust into Mexico’s 1982 default, and is optimistic that we are still seeing a slow but ongoing evolution towards better outcomes, both for countries and their creditors:
I would like to see that process continue, and for so long as I am compos mentis, I would like to participate and assist in that process. I just think it is so important for the citizens of the afflicted country, as well as for the health of the international financial system more generally, that we do become more efficient.
Perhaps. I am reminded of an old sovereign restructuring joke, where the US Treasury Secretary asks his Mexican counterpart about plans to resolve the country’s debt load. The Mexican finance minister says the country has two options: A sensible, realistic strategy; or a desperately hopeful one. Heartened the Treasury Secretary asks about the sensible solution. Unfortunately, this involves every Mexican going to church and praying for economic salvation.
So the despondent American asks his counterpart what the desperately optimistic option could possibly entail: “That involves getting an International Monetary Fund programme and growing our way out of our crisis,” the Mexican finance minister chortles.
The apocryphal joke — much loved by Buchheit and others in the field — indicates why resolving debt crises will ultimately likely always remain difficult. Some legal ju-jitsu can help, but the pain of austerity is nearly inescapable. But with paladins like Buchheit in their corner, countries like Venezuela can at least hope for a better future
