A Debt That Is Mostly Principal Is Paid by Refinancing
Every heavily indebted nation shares one piece of arithmetic, and the global totals carry it. In 2025 the public debt of developing countries reached $35 trillion and their net interest payments on it $995 billion, on UNCTAD's count. The median developing country spent 8.1% of government revenue on net interest, nearly double the share of 2010. Fifty-one developing countries now spend more on interest than on either education or health, and 3.7 billion people live in them, 1.2 billion more than in 2010; in Latin America and the Caribbean the share of the population living in such a country rose from 34% to 58% between 2010 and 2023 [1]. The World Bank's count of the flows is starker. Between 2022 and 2024 low- and middle-income countries paid out $741 billion more in principal and interest on their external debt than they received in new financing, the largest net outflow in at least fifty years, and their interest payments on external debt set a record for the second year running, at more than twice the level of a decade earlier [2].
The mechanism underneath those totals is the one the companion white paper measures for one country. On September 30, 2026 the gross debt of Argentina's central administration stood at US$486.6 billion, 51% of it payable in foreign currency, on the Secretaría de Finanzas's monthly bulletin, and of the foreign-currency service due between 2027 and 2035, 79.6% is principal [3][5]. A debt that is mostly principal is refinanced rather than paid, and the surplus the state runs covers only the coupon: Argentina's primary surplus of 1.38% of GDP in 2025 was absorbed 88% by interest [3]. Replace the currency and the ministry and the structure holds. The state rents time from its creditors at a price the market sets, and when the market begins to price a default the rent rises until the lease ends. The paper's sentence for it is exact: a country that pays its creditors by refinancing its principal is renting time it does not own [3].
The Extraction Decade catalogued the mechanisms that moved household free cash flow upward for ten years while the aggregates rose. The sovereign coupon is the same system's public leg. Interest leaves the budget before any school is built or any clinic staffed, and it leaves through the people who pay the taxes and lose the services, which is why the UNCTAD figure that matters most is not the stock but the premium: if developing countries could borrow at the rates developed countries pay, they would save about $500 billion a year in interest [1]. That premium is the extraction margin on sovereign debt. What follows asks what a state could do with the service it stops paying, and answers with the design the companion paper built for Argentina, stripped to its general form.
What the Record Says Waiting Costs
A holder of a distressed sovereign bond prices the alternative against the record, never against par, and the record is long. Across 327 sovereign restructurings since 1815 the creditor's loss sits near 40% of present value at the center of the distribution and near 75% in Argentina's 2005 exchange, on the paper's reading of the Meyer, Reinhart and Trebesch and Cruces and Trebesch datasets [3][14]. The timing of the deal moves the number as much as anything else: post-default exchanges cost creditors a mean of 48% and took sixty months, against 18% and twelve months when the exchange came before the default, in Asonuma and Trebesch's accounting that the paper reports [3][15]. A deal struck before a default has cost less than half of one struck after it.
For the country the counterfactual is worse than the haircut, because the years are not returned. The Argentine Mirror traced one default's decade, and the growth-linked warrants attached to the 2005 exchange show a second cost: they paid close to US$10 billion, stopped after the statistical rebasing of 2013, and ended in an English judgment the Republic was still resisting in 2026 [3]. Waiting costs the creditor the haircut and the country the years, and a conversion before the default is cheaper for both, on one condition the record has never met: that the thing the debt converts into is an asset rather than another claim.
Why Every Earlier Conversion Stayed Extractive
The record holds four decades of conversions of sovereign debt into something else, and the paper's Part IV reads each for the route by which it stayed extractive. The first route was a subsidy to the investor: under Chile's Chapter XIX of 1985 to 1989 a note bought abroad at about 60.5% of face was redeemed in Chile at about 88%, and investors and intermediaries captured about 70% of the market discount, a rent Ffrench-Davis puts at US$870 million, allocated with no auction [3][16]. The second route was debt replaced with debt. The Brady Plan of 1989 brought a real write-down and Treasury-collateralized bonds, yet Argentina's deal of 1993 cut about US$3 billion of US$28.5 billion, and its Brady bonds were among the claims exchanged again in 2005 [3][17].
The third route was a claim contingent on a number the debtor controlled, the GDP warrant already described. The fourth was state assets sold through managers paid on the assets they held. Poland's National Investment Funds of 1993 were fifteen listed funds holding 60% of 512 state firms; their certificate's last quotation in December 1998 stood 40% below its price at listing, the managers drew 2% to 3% of assets a year and had sold 325 of the firms by September 2001 [3][18]. A fifth lesson sits beside the four routes: a conversion settled in new money is a monetary operation, and Mexico's 1987 program, whose swap disbursements were a third of the growth of the monetary base in nine months, was cancelled that October [3].
What the record does not hold is the design itself. No sovereign has made the holders of its bonds owners of a fund whose assets are private companies that share their profit with the people who work in them, an absence the paper counts in its favor, because the Model that defines such a company did not exist [3]. The three lessons the record leaves are the three the design adopts: the conversion right is auctioned or priced at the market and never redeemed near par; settlement is in equity of the fund and never in base money; and the state's relief comes from the write-down of face at conversion, because the holder exchanges a claim with a par amount for one with none [3].
The Sovereign Fund, Stripped of Argentina
Set the Argentine statutes aside and the design has seven parts that any legislature could draft. A specific act of the legislature creates the Sovereign Fund with its own legal personality, bars it by statute from any exposure to the public sector in any form, and requires it to list from its first day [3]. Its capital is the service the state no longer pays on the bonds that convert, voted into the fund each year as an appropriation that may never exceed the service it retires and may never be borrowed. Its assets are the companies it finances through regulated managers chosen by public tender, under The SAVI Capital Model. Converting holders own class A, a senior class of its equity with no promised amount, ahead of the Treasury's class B, which takes the first loss. Holders who want debt take a separate note under foreign law carrying a warrant on the fund's audited net asset value, with a named third-party calculation agent and no link to GDP, revenue or any statistic the state compiles. Official lenders price an enhancement on the senior note and the pilot sleeve, never on the whole stock. A pilot tranche converts at the bid to produce the first listed price [3].
The currency decides the instrument, and the paper tests the design on two other sovereigns indebted in dollars. A debtor that issues its own currency converts its principal wall under its own currency risk; Egypt, where interest absorbed about 61% of revenue in the fiscal year to June 2025, carries a burden that is mostly domestic-currency interest, so the conversion reaches a smaller share of its problem [3]. A dollarized debtor converts the stock itself and needs the enhancement more; Ecuador, with reserves of 2.8 months of imports and no lender of last resort behind its banks, shows the form of that enhancement in its 2023 Galapagos operation: a US$656 million loan covered by political-risk insurance and a guarantee, in an operation that retired about a tenth of its global bonds [3]. In a dollarized economy the rule that settlement is in equity and never in base money is no longer a lesson; it is a condition of existence [3]. The design travels.
The price is stated in advance, in the paper's own arithmetic. On its coupons alone, class A is worth 13.9 per 100 of old face at a 2x outcome and 24.9 at 5x, discounted at the bond's own yield; a package of the note with an official floor of 50 at fifteen years and class A at 5x is worth 59.6 at 15%, above the 2005 and 2020 outcomes and below the Argentine bid of 71.2 on October 21, 2026 [3]. No holder is told to tender, and the paper promises no return, no recovery and no multiple. What the state receives is listed with the same plainness: the default avoided on its watch, the power of the purse through the yearly vote, a share of the freed service in the budget, and the credit for the workers' pools, whose defense against the next government is that they are paid by companies out of profit and never by the budget [3].
Where the Growth Comes From: The Model Inside the Fund
The fund is a wrapper; the growth comes from what it owns, and what it owns is defined by The SAVI Capital Model, adopted by the paper without amending a term. Every dollar of a financed company's net profit, exit gains included, divides at the top of the waterfall, before the preferred return, the catch-up and the carry: half to the people who work there, in equal shares per full-time employee through an Employee Trust, and half to the capital that financed them, which then runs a conventional waterfall with an 8% hurdle and a 20% carry [3][4]. The chief executive is an employee, holds one share in the pool, and is paid no more than 15 to 20 times the lowest-paid full-time worker. A stewardship review runs every year, the terms survive a sale through a single Trust Class Share, and once a fund's investors have received five times what they paid in, every further financial-side dollar passes to the adopter's own non-profit arm [3][21]. The glossary calls the first mechanic Bifurcation at the Top and the workforce's half the Human Capital Pool, on the recognition that labor is structurally equivalent to capital in producing the returns that fund conventions distribute [21].
The Model is applied through growth equity in companies with little or no acquisition debt, because the division of profit must be the senior claim on a company's earnings, and in the economies the design is written for little such debt exists: Argentina's bank credit to the private sector was 15.8% of GDP in 2025, against 75.1% in Brazil and 70.1% in Chile [3]. The Growth Equity Thesis set out why that architecture matters; the Sovereign Fund inherits it by necessity.
The growth channel is the one the glossary calls Structural Inclusion, the answer to Ownership Without Participation, in which equity ownership, the primary engine of wealth creation, is concentrated among those who do not contribute the labor that generates the value [21]. The Asset Loop runs the other way: low-cost capital and automated productivity gains accumulate among existing asset owners, inflating valuations at the top while bypassing the velocity of money at the base [21]. Half of net profit paid at payroll to a whole workforce is cash flow placed in the hands of the households with the highest propensity to spend and the heaviest debt. In the United States the bottom half of households owed 51.6% of consumer credit in the second quarter of 2026 while holding 2.3% of net worth and 0.6% of corporate equities, and the share of families late on a payment rose from 12.2% to 19.6% between the Federal Reserve's 2022 and 2025 surveys [6][7]. An economy whose aggregates rise while its median stalls is the K-Shaped Society of the glossary, and the decade's arithmetic documents it: nominal United States GDP grew 48.5% from the fourth quarter of 2019 to the second quarter of 2026 while real GDP grew 16.3%, real median household income rose 2.5% between 2019 and 2025, and the share of zombie firms rose from about 2% in the late 1980s to about 12% by 2016 across fourteen advanced economies [8][9][10]. Nominal growth sustained by issuance and refinancing is the signature of the extraction system; real growth paid at payroll in the currency of production is the signature of the Model.
The cost is stated as plainly as the first paper states it to limited partners. On the same companies and identical fund terms, below the outperformance threshold, a Model fund pays its investors what a conventional fund pays at half the profit: in the first paper's worked example, a US$100 million growth-equity fund whose portfolio earns five times its cost returns 3.84 times net to investors in a conventional fund and 2.38 times in a Model fund, while US$200 million reaches the people who work in the companies, about $400,000 per full-time employee over five years [4]. Converting holders are never charged for the sleeve, whose cost falls on class B, the Treasury's capital, and on the holders who elect class C with the cost disclosed [3]. The offsetting argument is the first paper's hypothesis, and only that: verified sharing may lower the political and default risk the record prices into every cell, no study yet tests sharing at half of profit, and the Model claims no outperformance because no evidence supports the claim [4]. The Mechanism Is Ownership reports the evidence that exists on profit sharing and ownership, and the pilot exists to produce the rest: the first listed price, the first audited net asset value, and the first Human Capital Pool paid by a company the fund financed [3].
From Interest to Ownership: The Three Pillars and the Fiscal Loop
The conversion is one of three pillars, and the paper says in every place it summarizes the design that they stand or fall together [3]. The first is a balanced fiscal policy, which no appropriation to class B may break. The appropriation is sized so that the primary balance stays at or above zero in every year, because an appropriation financed by borrowing would be the extractive channel reopened under a new name [3]. The second is the conversion itself, without which the principal wall returns on schedule. The third is the fiscal-load reform of the first paper, the Fifteen Compact, which replaces the taxes and contributions a Compact Enterprise pays with a single contribution rising in bands to a ceiling of 15% of profit after the workforce's share, and which on the first paper's own Argentine figures costs about 0.12% of GDP a year for each 1% of the formal private economy it covers, before any formalization effect [3][4]. The companies the fund finances are natural Compact Enterprises, so the Compact and the appropriation land on the same budget under one revenue trigger: the Compact widens, and the appropriation grows, only as published indicators of formal employment and net public revenue are met [3].
Written as a loop, the design reads in a paragraph. The state stops paying the coupon on the bonds that convert and votes part of that saving into the fund. The fund's managers, chosen by tender, finance companies that pay half of their net profit to the people who work in them at payroll and half to the capital that financed them. The workers spend, save and pay taxes in the economy that issued the bonds, the Compact enterprise pays one contribution on profit after the share, formal employment and net revenue rise on the published indicators, and the trigger opens the next band of the Compact and the next appropriation. A coupon that left the country is replaced by a dividend that stays in it. The loop runs only as fast as the economy can absorb equity capital: the sleeve's annual commitment is capped as a multiple of the trailing private-capital investment the industry's own count records, half to one times that market in the pilot, one to three at scale, two to four when mature, and idle capital is treated as the lesser evil [3].
What the loop does not promise is as important as what it describes. The paper rests no claim on a growth rate or a date, and this essay adds none. The claim is about direction and ownership: that the service a state stops paying can become productive equity whose profit is shared at payroll, that the shape of the resulting income is real rather than nominal, and that the design can be tested at pilot scale with a published result. The paper's pilot phase advances only when three managers have deployed, the first reports against the Four Tenets have been assured, and 70% of committed capital is drawn [3].
The Triangle, the K, and the Oval
The shape the extraction system leaves is the K-Shaped Society: a bifurcated economy in which asset owners accelerate upward while wage earners stagnate or decline, the social consequence of the Asset Loop [21]. The record of the middle is consistent across the surveys. The share of American adults in middle-income households fell from 61% in 1971 to 51% in 2023 on Pew's count; the OECD's middle-income share across its members fell from 64% to 61% between the mid-1980s and the mid-2010s; and the share of children who out-earn their parents fell from about 90% for the cohort born in 1940 to about 50% for the cohort born in 1984 [11][12][13]. The Extraction Decade drew the geometry that those numbers describe: a societal triangle whose straight sides have been pulled inward into exponential curves, a base that has widened and an apex that has narrowed and stretched, the form a solid takes when the air is drawn out of it.
The design intent of The SAVI Capital Model is a different shape, and the firm states it as intent rather than as a forecast, because no study tests it and a number would read as a promise. The shape is an oval lying on its side: a thin margin at the bottom where hardship persists despite every mechanism, the great body of the distribution in the middle, and a thin margin at the apex held by people who arrived there through integrity and what they built rather than through extraction from the rest. The glossary calls the restored middle the Symmetric Middle, the broad base re-integrated into capital formation through equitable profit-sharing and encoded governance, and it calls the organizing principle Strategic Symmetry, the deliberate re-coupling of human capital and financial capital so that value is distributed across the system rather than extracted from it [21]. The method is the Redistribution of Ownership Creation: not the redistribution of accumulated wealth, which a transfer financed by debt re-enters the extraction loop as sovereign interest, but the redirection of new ownership, at the point it is generated, toward the participants who help generate it [21].
The Sovereign Fund is the public-law instrument of that architecture. The first paper built the private instrument, a fund document that writes the four tenets into the legal terms of every fund the firm raises; the second builds the sovereign one, a statute that makes a state's creditors owners of companies run on those terms. The tenets are the same at both scales; only the counterparty changes, the limited partner in one, the bondholder and the Treasury in the other. The oval is not reached by transfers, which the triangle's apex finances with the base's taxes and the bond market's coupons, but by ownership created at payroll, in companies that exist because the service the state stopped paying was deployed into them, a route that owes nothing to generosity and everything to the fund document and the statute. The Moral Debt of the extraction system, the cumulative risk an enterprise or an economy accrues when profit is generated through extraction from its stakeholders rather than shared with them, is repriced eventually by markets, regulators or society [21]. The design reprices it in advance, by contract.
Objections, Conceded or Answered
The paper puts thirteen objections in a hostile reader's words, and the generic design inherits them. "This is a default by another name." Under the rating agencies' criteria it is, and the paper concedes it: the issuer goes to selective default until the agencies' review. What the label does not change is the arithmetic: 48% and sixty months after a default against 18% and twelve months before it [3][15]. "The fund will lend to the Treasury." The statute's bar is total and testable: one published number each quarter, the share of fund assets that is any claim on the public sector, set at zero [3]. "No one has ever done this." True, and the paper says so; Romania's Fondul Proprietatea and Iceland's bank creditors are precedents for a listed fund of state stakes and for creditors taking shares, and for nothing more, which is why the design begins with a pilot tranche and a published test [3].
"Holders will get less than the bid." On the coupons alone they would, in every cell the paper shows; once the fund exists an equity buyer can take the bonds at the bid, a preemptive conversion needs an official floor that exists only if a lender funds it, and in a restructuring the bid has already fallen to recovery levels, where the package sits above both measures of Argentina's 2005 exchange [3]. "The state will change the metric." The warrant is linked to audited net asset value with its methodology frozen in the statute and verified by a forensic reviewer, never to GDP, revenue or any statistic the state compiles [3]. "The economy cannot absorb the money." Conceded, and the sleeve is built around it with its cap and its gates [3]. "The 50/50 split is a tax on the creditor." The cost is 2.38x against 3.84x at a 5x gross outcome, the converting holder never pays for the sleeve, and the Santiago Principles, the 2008 code for sovereign wealth funds named for the Chilean capital where it was adopted, ask that a consideration beyond financial return of this kind be set out in the investment policy and publicly disclosed [3][4][19].
"Corruption will eat the fund." A sovereign fund is itself a target, and the paper names the worst case: 1MDB, from which more than US$4.5 billion was misappropriated between 2009 and 2015 on the United States Department of Justice's account [3][20]. The answer is an integrity regime written to the limit a constitution allows: two auditors with staggered terms, an annual forensic review by a third firm chosen by public draw, control by the state auditor, whistleblower rewards paid from recoveries, and beneficial-owner disclosure by contract [3]. "No government will adopt a design that audits it." The design is built for self-interested adopters: it takes no asset from the privatization pipeline, creates new companies, and gives the adopter the default avoided, the yearly vote and the credit for the workers' pools [3]. Thirteen objections, several conceded and the rest answered with a limit stated, leave a design that asks to be tested.
The Sequence Any Nation Can Start This Year
The sequence has four steps, each with an actor. The first is the statute, and its actor is the legislature: it creates the fund with its own legal personality, bars any public-sector exposure, fixes the asset rules, authorizes the yearly appropriation and the exchange, and carries the audit regime. It commits no future budget, because each appropriation is voted in its own year and may not exceed the service it retires, so legislating now puts the option on the shelf before the day it is needed [3]. The second is the term sheet, and its actor is the finance ministry with the state's own lawyers: the conversion ratio fixed by auction, the menu that keeps the offer uniformly applicable under the indentures, and the fund's sector on the statistician's reading [3].
The third step is the enhancement, and its actors are the official lenders: the International Monetary Fund, the World Bank, the regional development banks and the development-finance insurers. The paper sizes what they would carry for Argentina: a floor of 50 per 100 at fifteen years costs 22.6 per 100 of face on the Treasury curve of October 20, 2026, while the enhancement behind Ecuador's 2023 conversion came to about 1.3% of Argentina's foreign-law bonds in private hands [3]. Priced on the senior tranche and the sleeve, never on the whole stock, the enhancement is the condition of a preemptive conversion at scale; without it the design waits for distress. The fourth step is the pilot tranche, and its actors are the equity buyers and the managers: a first tranche converts at the bid at a scale the sleeve can absorb, and the managers chosen by tender deploy the appropriations into new companies and into existing private companies converted to the Model at closing [3].
The SAVI reading is stated once, in the paper's own terms. The firm offers the design and the Model's terms for the deployment sleeve. It would not manage the fund or any sleeve of it; the managers are chosen by tender, and the paper rests no claim on the firm's own performance. Any vehicle of the firm's own that takes part opens itself to independent evaluation and publishes the results, favorable or not [3]. The claim this essay makes is the paper's, generalized: a debt that is mostly principal is paid by refinancing while the surplus covers only interest, the record of waiting costs creditors about 40% at the center, a fund and a unit exist that a statute can create and a holder can price against that record, and the design needs the two reforms around it. Converting that debt into non-extractive ownership before the lease ends is the exit the record has never tried, the only one that leaves both the creditor and the country with an asset [3], and the only route the firm knows toward the shape a society has never yet had.