How I Issued Sovereign Bonds in South America
Three years and three months had passed since Eugene became acting president.
In that time, San Marcos had changed so completely it was fair to say heaven and earth had been turned upside down. The nickel mines were turning a steady profit. A massive oil field—some 2.6 billion barrels—had been brought online, and the refineries and chemical plants built to process it were wringing every last dollar of value from the crude. And that was hardly all. A nationwide resident registration drive had added some four million people to the official population, and to put those people to work, highways had begun unrolling across the country in every direction. The combined effect of these policies had sent GDP leaping threefold.
Granted, those numbers were only possible because the San Marcos economy had started from something close to a zero base. Even so, there was no denying that the Eugene administration had delivered extraordinary results.
Eugene, however, saw it differently.
Too slow.
He wanted San Marcos to develop faster. Much faster. The reason was simple.
At this pace, I can't retire in seven years.
He had never had the slightest intention of serving a second term. He had already been the de facto ruler for three years; by the time the first term ended, it would be a full decade. A second term would tack on another seven years—seventeen years of work in total.
He had been squirreling away his salary the entire time—the same minister's pay he'd drawn since his days as acting president—and had built it back up to a million dollars. He had absolutely no desire to keep working until then. A million dollars. Roughly 1.4 billion won. Some people would ask whether you could even retire on that. In Korea, of course not. But in San Marcos? A million dollars was enough to live on quite comfortably, fishing the days away at your leisure. You could even buy a modest building and live off the rent.
A man dreaming of that life found his patience wearing thin, and before long he had begun to worry at the problem in secret. How could he accelerate San Marcos's development? How could he retire faster?
Agony. The bitter kind, and the kind that loops and will not let go.
For some ten days Eugene kept at this miserable, grinding rumination—until a realization struck him like a bolt of lightning, and he saw the whole thing clear.
Why had he been chasing investment from Korean companies in the first place? Because he didn't have the money. So here was the question: given the current situation, what was the fastest way to pull in capital?
Sovereign bonds.
Three years of staggering progress notwithstanding, San Marcos was still a developing country—and among developing countries, one of the more thoroughly underdeveloped. Pour money into industry, hand out jobs, and the country would grow at speed. After that, you simply paid the bonds back with the tax revenue that came rolling in.
"Why didn't I think of this sooner?"
Most countries carry national debt in proportion to GDP. Reserve-currency nations run it close to 100 percent; everyone else typically borrows around 50 percent. Developing countries are no exception. The average debt-to-GDP ratio among Latin American nations sat at about 60 percent. Which meant San Marcos could take on that much debt as well—and plugging in the current GDP, they could pull in north of thirty billion dollars.
The catch was that they first had to pay off the old debts, loans that had sat stagnant so long they'd practically fossilized into oil. That was why, with American permission, they had negotiated with Russia through Korea.
Having shaken those ancient debts off his books, Eugene said, simply:
"Let's issue sovereign bonds."
And with that, he began preparing the borrow-and-repay scheme in earnest.
"……"
The moment he proposed issuing sovereign bonds, a silence settled over the conference room. Fair enough. It was more or less a suggestion that they take on debt the instant after paying it off.
That was the whole point of paying it off in the first place.
For the sake of my early retirement, San Marcos's development had to move at least twice as fast as it was moving now—and for that, a bond issue was essential.
Ricardo, the Senior Secretary for Finance, looked at me with distinctly queasy eyes.
"…I would like to ask what scale of issuance Your Excellency has in mind."
"I was thinking something on this order."
Instead of answering, I held up two fingers.
"Two billion dollars, Your Excellency? That's not too lar—"
"Two billion? What are we supposed to do with that, stick it on someone's nose? I intend to issue twenty billion dollars in sovereign bonds—twice, over two years."
"Y-Your Excellency! Th-that's far too much. Interest rates have been climbing of late. If we issue on that scale, the interest alone could be enormous."
"You need not worry. We'll be earning faster than we pay the interest."
At the talk of borrowing to repay, Isabella cut in.
"Was the reason you settled the Russian bonds so that we might issue sovereign bonds?"
"That's right."
"Then might I inquire as to why you wish to issue them?"
"Plenty of reasons."
I laid out before them all the grand design I had agonized over and built from the ground up.
A comprehensive state-led modernization program, calibrated to the remaining length of the presidential term.
Surprise kindled in the eyes of every cabinet member looking at the screen.
"Economic Development… a Six-Year Plan?"
The convention was to cut these things in five-year or ten-year blocks, but I had six years and nine months left on the clock, so a six-year plan was exactly right.
I'll be a lame duck for those last nine months anyway.
In place of a pointer, I lifted the presidential longsword—scabbard and all—and aimed it at the screen.
"Until now, we have been running this country by scrambling to deal with whatever came at us."
The criticism was precise enough that a low murmur ran through the room.
"I am not blaming any of you. If we had not solved the problems immediately in front of us, the nation would have fallen into crisis."
"……"
"But from this point forward, that will no longer do. We must pursue government-led national development under a thorough and deliberate plan."
"Then the bond issuance…"
"Will be the capital for economic development."
"Issuing bonds for economic development… that does, indeed, seem the correct approach."
Isabella nodded, and the senior secretaries piled on.
"Your Excellency's profound intent! I finally understand!"
"As expected of Your Excellency! You see what ordinary men like us dare not even look upon!"
"Ahh…! I, Ricardo, hereby swear my loyalty to Your Excellency!"
"No."
I hadn't even started the actual briefing…
"I believe the admiration should wait until you've heard the entire plan."
Everyone clammed up at once. I resumed.
"The single greatest problem facing San Marcos right now is a shortage of infrastructure. We are building highways, but it is not enough, and in the provinces there are scarcely even cities. Hospitals have been inadequate for a long time. But if I had to name the most critical shortfall…"
I clicked the remote. The first slide advanced, and a new title filled the screen.
National electricity capacity — current shortfall and proposed remedies
"Electricity."
"……"
"If we mean to grow the nation's key industries, power is not optional. But our present supply is nowhere near enough to support that growth."
San Marcos's electricity supply did not even cover 70 percent of demand. It had originally run close to 100 percent, but as industrial parks expanded and Korean firms moved in, the shortfall had become severe. And where was the missing 30 percent coming from? From restricting household consumption.
Not a good solution. Not even close.
That was why, come ten o'clock at night, the citizens of Libertad lived by candlelight.
"Is that not why you commissioned a nuclear power plant from Korea?"
Isabella was right—it wasn't as though we had done nothing. The problem was this:
"That plant will take four years to complete. And for San Marcos as it stands, those four years are far too precious."
Nuclear power plants do not appear overnight.
"Have any of you been to downtown Libertad at ten in the evening? Investors arrive expecting a glittering nightscape. What they find is our people sweating through dinner under candlelight. What company is going to invest in a country where the factories stop because there is no electricity?"
The senior secretaries shrank into their collars.
"Which is why I intend to introduce solar power plants and energy storage systems."
I clicked the remote again. A map appeared, a massive power-plant icon stamped across the plains beside Libertad.
"…That would certainly be the fastest remedy. But once the nuclear plant is completed, I should think generation will actually exceed demand."
"That's right. Some might call it overlapping investment, or overinvestment. So here is what I propose we do."
A beep. A red X bloomed over the site of the thermal power plant.
"Once the nuclear plant comes online, I intend to demolish the thermal plants. Frankly, they're over thirty years old and no longer efficient, are they? Or…"
Another beep. This time a black line traced from Libertad's southern port toward the Dominican Republic.
"We sell the surplus power cheap. You all know the Dominican Republic's electricity situation."
"Wow…"
The sound of genuine admiration slipped out of Aman, the Senior Secretary for Industry. I looked around the table.
"Simultaneously with the construction of the solar plants, I intend to establish the San Marcos State Power Corporation."
"I have a question."
Isabella's eyes were bright with interest.
"May I know why you wish to create a state power company rather than Tortilla?"
"Tortilla as it stands could be called a semi-state enterprise, but water and electricity are essential infrastructure. I intend to place them entirely in the public domain—one hundred percent."
"Your Excellency truly thinks of the people to the very end."
"…This is only natural."
"It is not. There is not a single country in Central or South America where electric power has not been privatized."
"Then those countries are the ones that have it wrong. There is nothing more dangerous than leaving an essential good like electricity in private hands—least of all in the hands of entities that exist to chase profit."
"…!"
At that calm warning, the senior secretaries straightened in their seats.
"The state steps forward for the public good, and the people enjoy the benefit…"
Isabella murmured it as if in a daze. Whatever doubts she had harbored about the bond issue had vanished from her eyes completely.
"Once we have solved the power shortage as a first step, we will grow the key industries in earnest. The proceeds from the bond issue will go there."
I set the longsword down and drove the point home.
"Secretary Ricardo. Draft a detailed roadmap for a twenty-billion-dollar sovereign bond issue, effective immediately. The rest of you, consider how you will assist the Ministry of Finance."
"Yes, Your Excellency!"
The senior secretaries' booming reply rang through the conference room.
But they had no idea.
Eugene's real plan was to take the money from the bond sale and short the market with it—puffing the capital up fat—before he so much as broke ground on a single solar plant.
Trump, bro. Help me out here.