Economist Reinhart: Greece Isn't Last Sovereign-Debt Restructuring
14-Sep-2012
WASHINGTON--More advanced-country debt restructurings should be expected in the years ahead, said Carmen Reinhart, a Harvard University professor and former senior International Monetary Fund economist, on Friday.
"Restructurings do not end in Greece," Mrs. Reinhart said at an IMF seminar entitled, "Financial Crisis: Causes, Consequences and policy Responses."
"The crisis is far from over," she said.
Since debt restructuring can have disastrous results, Mrs. Reinhart said there was a role for the IMF to advise those nations that need to extend the maturity of their debt repayments or force losses on debt holdings.
"I'm going to talk about the elephant in the living room, which is restructuring," the former IMF deputy director of research told a packed conference hall that included top fund officials and economists.
Mrs. Reinhart said current debt accounting is insufficient and doesn't appropriately account for both public and private debt and contingent liabilities.
"If we're focusing on public debt, then we're missing the boat," she said. "It doesn't give you the full range of the magnitude of debt overhang we're facing."
That is particularly important because private debt is increasingly being shifted from private balance sheets onto public accounts.
For example, in the debate over cutting U.S. debt, the focus has been on the roughly 70% debt level held by the public as a percentage of gross domestic product. But the average level of the public and private external debt alone for 22 advanced economies is close to 275%.
Advanced economies, largely the U.S., Europe and Japan, have surpassed World War II debt levels, measured as a percentage of GDP, when ravaged nations borrowed heavily, primarily from the U.S., to rebuild their nations.
"The emerging-market boom and bust of the late 1970s and '80s, the so-called lost decade, pales in comparison when we're looking at the orders of magnitude involved," Mrs. Reinhart said.
Fiscal consolidation and financial repression--where governments channel funds to themselves to cut debt levels--won't be enough to solve this crisis, Mrs. Reinhart said.
"Debt restructuring gets you there a lot faster," she said.
Write to Ian Talley at ian.talley@dowjones.com |
