Uruguay was able, via a $1.5 billion bridging loan from the US treasury, to open negotiations with its creditors, overseen by the IMF. A bond-swap was offered, replacing shorter-term bonds with longer maturities. Over 90% of bond-holders agreed to the terms and haircuts averaged only 13%. Uruguay’s downward spiral was broken, with four years of recession rebounding into growth of nearly 8% the following year and a similarly swift return to the international capital markets.
Uruguay’s public debt at the time, while large, was approaching 100% of GDP – not pushing towards double that, as in Greece. It was not crippled by a fixed exchange rate regime, as Greece, trapped inside the euro, currently is. And it could rely, post default, on a booming world economy to drive domestic expansion.
Argentina, too, entered into the same spiral of rising debt and shrinking economy after 1998. Under IMF tutelage, it also attempted a series of bond-swaps, rearranging the maturity dates on its existing debt to reduce the current burden. This culminated in June 2001’s “megaswap”, which rescheduled around $30 billion of Argentina’s debt, pushing payments to beyond 2005. To secure the voluntary participation of Argentina’s many creditors in such a big operation, the terms had to be generous – so generous as to actually increase the value of Argentina’s debt. The debt dynamic was not broken. The economy disintegrated. Argentina defaulted, without agreement, on its entire $138 billion external debt in December 2001.
Greece today is far closer to Argentina. Both are medium-sized economies. Both were trapped in fixed-currency regimes, preventing devaluation. And both stuck to IMF-led austerity programmes, backed up by debt restructuring. Just as in Argentina, the most recent attempt to voluntarily reschedule Greece’s debt, the much-heralded 21 July agreement, actually led to an increase in Greece’s real debt burden.