Bill Rhodes, the former Citigroup banker and veteran of every major debt crisis since the early 1980s, yesterday urged financial leaders to take decisive action to tackle the eurozone crisis.
He said the Washington IMF/World Bank meetings offered an opportunity to end the lack of leadership at both the national and international level. Political leaders could move rapidly after wasting several months with a series of delayed responses.
“The clock is always ticking, and time is running against you, and you can’t move fast enough to implement the measures that you want to,” he said in an interview with Emerging Markets on the fringe of the annual meetings of the International Institute of Finance.
He was highly critical of the lack of leadership in national European capitals – which he compared with the determination of figures such as former Brazilian president Fernando Henrique Cardoso and former Turkish economy minister Kemal Dervis to resolve their debt crises in previous decades.
“This is an opportunity for the Europeans to get their act together,” he said, calling on the 17 eurozone member states to approve the expansion of the European Financial Stability facility (EFSF) as soon as possible, to take over from the European Central Bank the role of buying sovereign debt.
“I think we need better leadership and more active leadership, and I think the opportunity starts right now,” he said. “We need to see strong leadership not just from the eurozone, but from the international financial institutions like the IMF here in Washington.”
He said eurozone leaders had learned none of the lessons from the crises in Latin America in the 1980s and in south east Asia and Russia in the 1990s. Chief among these was a failure to involve the private sector in the early stages of the bailout of Greece.
“Contagion was the word everyone thought had been put to bed after the Asian financial crisis and the fallout that came from Long Term Capital Management and Russia in
1998. European policymakers did not believe there could be contagion 18 months ago.”
Rhodes is most famous for working in the 1980s with then US Treasury Secretary Nicholas Brady to formulate what become known as the “Brady plan” to resolve the Latin American crisis.
The dollar-denominated “Brady bonds”, issued in 1989, focused on debt and debt service reduction by commercial bank creditors for those debtors who agreed to implement substantial economic reform.
Rhodes said he was hopeful that coordinated action by European leaders and strong leadership by the IMF could draw a line under the debt crisis as it did in the previous episodes he recounts in his book, Banker to the World.
“This is an opportunity for the IMF to take a stronger leadership role as they have in the past and be an anchor in these situations. “They could ask the surplus countries to put together some sort of fund to be administrated by the IMF to help some of these problem debt-ridden countries if these policies take the right policies.”
He believed that Christine Lagarde, whom he praised for her time as French finance minister, would take the opportunity to reinforce the lead role of the IMF.