By Katerina Sokou
The head of the Institute of International Finance (IIF) Charles Dallara, who negotiated for banks the manner in which private creditors will participate in the bailout package for Greece, is so certain about the success of the plan that he predicts the country will be able to obtain credit from the international markets within a couple of years.
In an exclusive interview with Kathimerini, Dallara said: “I have witnessed a number of cases in the last three decades. One must make a considerable replanning or a restructuring of the public debt, with a reduction of the debt. In that case the average time of return to the markets is 18 months. The markets believe that Greece’s problems are serious, which is why I am adding six to 12 months to that.
“Yet I do not see any reason why Athens cannot return to the markets within 18 to 30 months. This is a matter of momentum and of regaining credibility.”
There are, however, certain analysts who believe that the forecast reduction of the public debt will not be sufficient to render it sustainable.
I do not agree with that. I think you need to see the sustainability of the debt as a concept that includes serving the debt, the growth prospects and in general the investment environment of the country.
We have this agreement, with which we will immediately, within the next few months, reduce the loan debt of Greece by 10 percent of the gross domestic product, or 25 billion euros. This will constitute a major reduction, and these are but conservative estimates.
There is also the reduction of the interest rate by the European Union and the private creditors, which will reduce the weight of serving the Greek debt in the coming years. Private investors also commit themselves to a long flow of funding of 135 billion euros, with interest rates that are far lower than those in the market.
When you combine these elements, even without the highest growth prospects, you will see that the ratio of the debt to GDP will go down from 142 percent last year to 126 percent of the GDP in 2015.
In the future, again without higher growth, based on the forecasts of the International Monetary Fund (IMF), you can easily bring the ratio down to 100 percent of GDP by 2020, while with a growth of 1 percent of GDP more, down to below 90 percent.
In my view, therefore, this is a very strong package for the sustainability of the Greek debt. The analysts just need to look more carefully into the data.
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The success of the agreement depends on the participation of 90 percent of the private sector. Are you certain this target can be met?
Yes, I am positive that this target can be met, provided that everyone do their job and cooperate in harmony. That includes the Greek government, the companies that will administer the agreement, the European leadership and the IMF.&?nbsp;
We have a strong group of private investors, major banks and insurance companies who have already committed themselves to it. It is also important that the European leadership continues to encourage their participation on a voluntary basis, as well as that the companies recognize its significance for the long-term stability of Europe, and not see it in narrow terms, whether they lose money or not.
There is also the worry that Greek banks may be nationalized or bought out owing to the losses they will incur. Do you consider that a possibility?
I do not consider this to be a likely scenario. Of course, every lender will have to evaluate its capital basis under the condition of its own participation in the restructuring plan.
The way we view it, using also the results of the recent stress tests as a basis, the majority of Greek banks will be able to manage their losses from this agreement without resorting to a major capital increase. They may require some new funds, but I would hope that in most of the cases this will be done through the market.
A nationalization would be exceptionally unfortunate and unnecessary. The role of the state in the Greek economy will have to be reduced, not increased.
Would the process be affected by a downgrade to a selective default?
No, and it is actually encouraging for us that all three international rating agencies have acknowledged that in the future the agreement will be able to augment the potential for growth and the sustainability of the Greek debt.
This is exactly what really matters now: Not whether there is a technical assessment for a selective default for a few days or weeks, but whether, once the transactions are completed and the reforms are being implemented, the solvency of Greece improves.
There is no disagreement on this: If the Greek government implements the program and we are successful in the transactions, then the country will become one of the most credible and solvent locations for investors.
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