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Greece is not Uruguay; the Athens debt case is more like Argentina, says economist

Friday, June 3rd 2011 - 23:19 UTC
Full article 16 comments
Economist Culverhouse: Uruguay’s problems were external, Greece has only itself to blame  Economist Culverhouse: Uruguay’s problems were external, Greece has only itself to blame

Past voluntary debt re-profiling in Latin America have worked to varying degrees, but “soft” restructuring is not going to solve Greece's debt problems, according to Stuart Culverhouse, chief economist of frontier markets specialist Exotix.

Parallels have been drawn between Greece's current dilemma and that of Uruguay, which underwent a voluntary debt exchange in May 2003 after its 2002 financial crisis left it with a public debt mountain and a cluster of debt maturities over 2003-2007.

The Uruguayan government extended the maturities on its debt without a reduction in coupons, restored debt sustainability and avoided default.

Greece, however, is not Uruguay, Culverhouse said in an interview with

“The comparison is a tricky one. I think people have seen the fact that there was a maturity extension operation several years ago in a country with ostensibly similar public debt issues, and said well, it worked then, it must be able to work now. It's not so clear cut,” he said.

“We're talking a much larger operation if Greece was to go through this process, and possibly a much more fragmented investor base, a more diverse banking sector. I don't think the parallels are strictly there, which means to us that it's going to be a much harder thing to try and pull off.”

Uruguay had less debt and lower deficits than Greece when it entered its crisis, and much of the rise in its debt/GDP ratio was due to exchange rate depreciation, Culverhouse noted. Its exchange rate flexibility post-crisis also allowed its government to respond more effectively by restoring investor confidence and improve the country's competitiveness. Without leaving the Euro, Greece would not have this flexibility.

Uruguay also had a relatively small debt reduction, compared to the considerable cut that Greece will need. The Latin American country also benefited from a stronger global and regional economic outlook and from a market perception that its problems were externally, rather than internally driven. Investors today are struggling to buy the argument that Greece's problems were anyone else's fault but its own.

Argentina's attempt at a debt extension in June 2001 is perhaps a better example of how Greece's re-profiling might play out, Culverhouse said. That voluntary debt exchange was only a temporary success, staving off default for six months.

“I don't think it's going to work in the sense that it's going to restore sustainability and solvency. It may buy a little bit more time, but I don't think that alters the underlying debt dynamics. It doesn't solve the debt/GDP ratio.”

Deferral is “the only decision that policymakers are willing to consider,” Culverhouse said. “We think they need to go further.”

”(Default) may be the inevitable consequence of an operation that has a significant debt reduction. I think it will mean that they will end up defaulting… within the next year or so”, concluded economist Culverhouse.

Categories: Economy, International, Uruguay.

Top Comments

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  • briton

    I have no idea why he is comparing Greece to Argentina,
    Or to that matter any South American country,
    if you wish to compare, then he should have compared with other European countries, like Ireland Portugal and Spain who are in deep trouble,
    and even perhaps the UK or France and others who will be in deep trouble if they keep bailing out these failed states, their own governments got them into this mess, then their own governments should dig them out, or go under, hit the floor then start over, you either rein in your debts , or the debts will sink you, comparing them to south American countries is just hiding their own defaults, just an opinion .

    Jun 03rd, 2011 - 11:40 pm 0
  • Fido Dido

    And Greece is getting another bailout. Broken economies “lend” more money “printed from thin air” to broken economies, who's debt are growing and growing. My god, shows how incompetent they are in Europe.

    Well Briton, if you did some research (oh wait you can't) about nations who has been in this position, you would understand that Greece has two options to save itself from thieves, IMF. Watch out, same thieves will pay more visits in the UK and scream “Austerity Measure” are needed to save the UK. In otherwords, raise taxes, retire later (until you're dead) and cut services, you'll get less for paying more.

    option 1

    Greece should default and renegotiate/restructre it's debt (what Argentina did)

    Option 2

    Default, get out of the Euro and go back to the drachma but back it up by gold and silver. They can do it, but the Germans, French, EU, IMF (=USA) are fighting it and prefer to rape Greece.

    the reality is becoming visible for all people in the so called west. They are broke economies with neo-liberal (crooked socialists) policies.

    Jun 04th, 2011 - 01:17 am 0
  • yul

    Greece has not problems as the same as once Argentina had !

    EXTERNAL DEBTS ( Uruguay/ 2010) millions US $

    (S) short term........(L) long term

    Government ..10,693.....(S) 0.........(L) 10,693

    Central Bank ...838... (S) 96.........(L) 742

    Banks ......0........(S) 0...........(L) 0 ........

    Real Sector ......1,445.......(S) 51........(L) 1,395

    GROSS EXTERNAL DEBT (Uruguay) = 12,977 millions US $

    Jun 04th, 2011 - 09:59 am 0
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