Wednesday, October 26, 2016

Prayer is Not an Option

My advice, minister, is that you:

■ Disregard any debt sustainability analysis that assigns a greater than 50% probability to the occurrence of the second coming of Christ before the next bond maturity.

■ While avoiding unrealistic optimism, do not careen to the other extreme of soul-destroying despair. A request for financial assistance addressed to the executive board of the IMF should not begin with the sentence: “The last camel died at noon.” Panic is as infectious as yawning. So, however, is a sense of composure and control.

■ Once it becomes clear that the debt stock must be addressed, get on with it. Creditors may not like the prospect of having to write off a portion of their claims or defer repayment dates, but they positively loathe prolonged periods of indecision and dithering. Efficiency, discipline and fairness, even in carrying out a disagreeable task, will be remembered by markets long after the financial pain of a sovereign debt restructuring has been forgotten.

A sovereign debt crisis is just that: a crisis. It does not have to become a catastrophe.
"An open letter to the minister of finance of Ruritania" by Lee C Buchheit