* Uruguay-style debt reprofiling an alternative for Greece
* Reprofiling would lock in private sector, buy time
* Market impact seen lower than outright default
(Clarifies that extension of Uruguay's debt was a bond swap,
paragraph 3; adds details on ISDA position that a voluntary
debt exchange would not trigger Greece's CDS contracts,
By Walter Brandimarte
NEW YORK, June 12 European policymakers
scrambling to find a solution to Greece's debt crisis should
probably look to Latin America.
Uruguay, for example, was able to pull off one of the
smoother sovereign debt restructurings of the past decade. For
Greece, its strategy would be an alternative to both an
Argentine-style default and serial government bailouts that are
increasingly harder to swallow for euro zone taxpayers.
When Uruguay could no longer afford to pay its debts in
2003, it asked creditors to participate in a bond swap that
would extend for five years the maturities in half of its
international bonds, keeping their face value and coupon
Fearing the alternative would be far worse, 90 percent of
the creditors agreed to the bond exchange, concluded in May
2003. A few months later, Uruguay was back to international
capital markets. By "reprofiling" its debt, the country got the
financial relief and the time it needed to implement essential
reforms in its banking system.
To be sure, Greece's problems are far worse than those
Uruguay had, experts on Latin American debt crises say. It is
still to be seen whether the Greeks would be able to implement
privatizations and painful reforms, even if five more years
were given to them.
But a "soft restructuring" of Greece's debt is worth
trying, especially when billions of euros of Greece's debt
continue to migrate from the private sector to the books of
institutions backed by richer European countries.
"If I was sitting where Ms. (Angela) Merkel is, I would
say, 'This is not a game I want to play,'" said Lee Buchheit, a
partner at law firm Cleary Gottlieb Steen & Hamilton, who
advised Uruguay during its debt restructuring.
"I would much rather grab those private-sector creditors by
the nose and hold them in until we find out what has to be
done, down the road, to finally resolve this problem," he said
at a recent conference organized in New York by EMTA, an
industry group formerly known as the Emerging Markets Trade
If it turns out that Greece eventually needs to default, he
added, it is just fair for the German chancellor to want "the
private sector under that sword, not the German taxpayer."
Buchheit cited the example of the Latin American debt
crisis of the 1980s, which started when Mexico was unable to
pay its creditors in 1982.
At the time, he recalled, U.S. bank executives flew to
Washington to ask then-Treasury Secretary James Baker to extend
loans to the neighboring country so that the Mexican government
could pay them back. Instead, Baker forced private creditors to
"Seven years went by, during which time they (the banks)
built up their loan loss reserve provisions and finally that
sword did fall, said Buchheit.
The attorney helped create the Brady plan that resulted
from the 1989 re-emergence of the Mexican crisis.
The plan, named after U.S. Treasury Secretary Nicholas
Brady, allowed developing economies to restructure their debt
by issuing new bonds, many of them backed by U.S. Treasury
securities, in exchange for structural reforms.