The possibility of a quick or easy salvation looks increasingly unlikely for Greece, which would be bankrupt without international support but whose leaders have had difficulty undertaking the drastic reforms European leaders say are necessary.
With uncertainty still hanging over a European bailout package, it remains possible that Greece could default on its debts entirely, making it an outcast like Argentina.
But the tales of other countries in crisis have shown that it’s possible to push through tough measures and emerge with growth on the other side.
Today tiny Uruguay, with just 3.5 million people across the River Plate from Argentina, is a darling of Wall Street. Ten years after being forced to ask creditors to accept a 20 percent write-down on its debts, its economy is among the world’s fastest-growing.
Carlos Steneri, an economist who oversaw Uruguay’s debt management at the time, said officials agreed that it was vital to quickly restore public confidence in the face of a bank run. Technically, Uruguay defaulted. But it worked closely with U.S. and International Monetary Fund officials, negotiated with bondholders and slashed wages and pension payments.
The goal, Steneri said, was to ensure that Uruguay’s reputation remained intact.
“We are a country known for being serious, respecting contracts and the law,” he said. “There was no sense throwing that away. Simply defaulting would have brought gains, but we would have lost being a credible country.”
So far, however, Greece has responded to its crisis with political paralysis. No civil servant has been laid off, privatizations of inefficient state companies are progressing at a snail’s pace and tax evasion remains rampant. Prime Minister George Papandreou’s decision to stage a referendum on the bailout plan and then his sudden backing away Thursday only added uncertainty to the drama in Europe.
It is a scenario that is beginning to resemble what happened in Argentina, whose $100 billion default in December 2001 was the biggest in history.
In the Argentine case, five presidents stepped down in two weeks, deadly riots shook Buenos Aires and Argentines lost their life savings. Much later, Argentina issued a take-it-or-leave-it offer to bondholders, offering to pay about 35 cents on the dollar.
Today, the government still owes about $15 billion to hard-core creditors and has lost judgments in U.S. courts to pay up. With the country still
blocked from tapping international capital markets, it is mostly because of booming demand for its agricultural products that Argentina has been lifted from economic calamity.