International banks considering participation in the bailout of Greece by rolling over their bonds are showing “growing interest” in a possible debt buyback, said Charles Dallara, managing director of the Institute of International Finance.
Techniques that “re-profile maturity over a long period of time” should be combined with “other techniques which can wear down the stock of debt in the near-term, and buybacks are a real option here,” Dallara, whose organization represents more than 400 global banks and insurers, said at a meeting with three reporters in Istanbul today.
European Union leaders, who rejected buybacks earlier this year, have called on private investors to shoulder some of the cost of a new bailout package for Greece, a year after the 110 billion-euro ($158 billion) rescue that failed to stop the spread of the region’s debt crisis. Under a plan by the French banking association, investors holding Greek bonds maturing by mid-2014 would be asked to roll over 70 percent of their holdings into new 30-year debt.
The private financial community is more likely to sign onto a structure melding the rollover plan currently being discussed with methods to reduce upfront risk, possibly through buying back and retiring Greek bonds, he said. The amount of buybacks would have to be “significant enough to affect the thinking of market analysts,” he said, declining to give further details.
“What is of interest to a lot of those in the private financial community is a more comprehensive approach that blends an option along these lines with buybacks or some other meaningful technique for reducing debt upfront,” he said.
The French proposal’s requirement that ratings agencies offer “informal clearance” that they won’t downgrade Greece to default is not realistic, he said. “Rating agencies should not be, in my view, integral to the shaping of options.”
The fundamentals of the Greek economy, which suffers from “enormous structural distortions and efficiencies,” will be strengthened during the restructuring process and the potential for Greek growth could be considerable, Dallara said. He drew a comparison with China, where he said double-digit growth rates have been based partly on improving economic inefficiencies.
“With an unleashing of some greater potential in terms of competitiveness and focus on hammering out those structural restraints that inhibit the movement of capital, investment and employment, creating a credible tax system there, this country has considerable upside,” he said of Greece.
The necessity for sustained adjustment to the Greek economy and the multitude of players involved are obstacles to reaching a solution, “but I don’t see any of these as being insurmountable by any means,” he said.
“If everyone undergoes some pain and everyone contributes to the solution, a way forward can be found,” he said. “There are reasons to believe that this is going to turn positive in the hours ahead and then the challenge will be back on the plate of the global community to step forward in support of Greece.”