I’m afraid that while considering the Greek public finance crisis “The Economist” (A question of maturity, April 20th) is right while suggesting that “the economics point to a harsher solution: a steep write-down as part of a broader package of reforms.” I’m afraid that such an obvious argument will hardly be understood nor supported for some time. And the elapsing time makes the whole unavoidable adjustment only more costly for both, the Greek taxpayers and the domestic and international creditors.
Yet I’m not sure why some bring to the fore a seeming analogy with the sample of Uruguay from 2003? I would rather learn from the case of restructuring of Poland’s nonperforming foreign debt. It was not easy to strike the deal, yet – as then the deputy premier and finance minister – I signed in 1994 a pragmatic accord with the London Club. And it did work. Half of the outstanding debt was written off and is what paved the road for smooth service of the remaining obligations. Yet such a significant reduction was based on very tough conditionality and enforced far-going structural reforms which enabled us not to enter again the debt trap of living beyond our means. The difference is that in the case of Greece it’s not only the matter of outstanding foreign debt, but the forthcoming domestic insolvency too, but – hopefully – our Greek friends have learned by now that the inescapable invoice has already arrived.
Professor Kolodko runs a special portal and blog, www.volatileworld.net, devoted to his bestselling book “Truth, Errors, and Lies: Politics and Economics in a Volatile World”.