October 10, 2011

Greece Default more likely like Argentina in 1999-2001 than Uruguay in 2003

UK Guaridan - Uruguay, like other South American economies, ran into its own debt crisis in 2003.

Uruguay was able, via a $1.5 billion bridging loan from the US treasury, to open negotiations with its creditors, overseen by the IMF. A bond-swap was offered, replacing shorter-term bonds with longer maturities. Over 90% of bond-holders agreed to the terms and haircuts averaged only 13%. Uruguay's downward spiral was broken, with four years of recession rebounding into growth of nearly 8% the following year and a similarly swift return to the international capital markets.

Uruguay's public debt at the time, while large, was approaching 100% of GDP – not pushing towards double that, as in Greece. It was not crippled by a fixed exchange rate regime, as Greece, trapped inside the euro, currently is. And it could rely, post default, on a booming world economy to drive domestic expansion.




Argentina, too, entered into the same spiral of rising debt and shrinking economy after 1998. Under IMF tutelage, it also attempted a series of bond-swaps, rearranging the maturity dates on its existing debt to reduce the current burden. This culminated in June 2001's "megaswap", which rescheduled around $30 billion of Argentina's debt, pushing payments to beyond 2005. To secure the voluntary participation of Argentina's many creditors in such a big operation, the terms had to be generous – so generous as to actually increase the value of Argentina's debt. The debt dynamic was not broken. The economy disintegrated. Argentina defaulted, without agreement, on its entire $138 billion external debt in December 2001.

Greece today is far closer to Argentina. Both are medium-sized economies. Both were trapped in fixed-currency regimes, preventing devaluation. And both stuck to IMF-led austerity programmes, backed up by debt restructuring. Just as in Argentina, the most recent attempt to voluntarily reschedule Greece's debt, the much-heralded 21 July agreement, actually led to an increase in Greece's real debt burden.


If you liked this article, please give it a quick review on ycombinator or StumbleUpon. Thanks

Congratulations! Now you can use SolidOpinion commenting system in all its magnificence! Click the link to get your password.

Форма для связи

Name

Email *

Message *