The Janus effect, by A Abelson , Barrons 1/12/97
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Asia's woes may not be as bad as everyone thinks -- they may be worse.
That, at least, is the considered opinion of Ray Dalio. Ray, who runs Bridgewater Associates, says flatly, "I believe there is not enough money to mount a bailout, and the borrowers and lenders are too dispersed to allow the management of this problem to proceed as well as it did in the 1980s debt problem."
During that Latin American crisis, "a much more concentrated group of lenders [commercial banks] lent the money to a much more concentrated group of sovereign borrowers." The banks and the de facto bankrupts both could be fitted comfortably in one decent-sized conference room. The IMF was a presence but not an overwhelming one.
Debtors and creditors, as a result, were much better able to cut deals, such as rolling over or restructuring debt. The bargaining was carried out by a committee of banks (led by Citibank) on the one side and each of the respective borrowers on the other.
This time around, by contrast, there's an enormous profusion and confusion of debtors and creditors. The pulls and tugs of such a throng make negotiating as easy as building the Tower of Babel.
In working up a makeshift Korean arrangement, Ray notes that the lenders have agreed to roll over the loans for a very short stretch, and many of them have perfectly good reasons why they can't be more generous (they're not allowed to hold securities below investment grade, for one thing). And they, by and large, also are eager for terms they probably won't get.
As to the New Patron Saint of the World's Debtors -- the IMF -- Ray contends that its "arsenal is much too small" to assure the debts being rolled over or restructured effectively. And he opines that "it is unlikely that the big contributors (particularly the U.S. and Germany)" will raise the quotas even a little, let alone the amount required to get the job done.
"I think," he sighs, "the ship is likely to sink."
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