«Too many cooks and no time to waste» (today’s geopolitical environment for the debt crisis) — A conversation with Bill Rhodes, author of Banker to the World
“All crises can be managed” is an axiom of William R. Rhodes, author of “Banker to the World”. But now, “we have more cooks and we no longer have the time we had decades ago – now everything flies in nanoseconds.” And the G20 turns out as a frustration. “Multiple summits and nothing happens,” he regrets. The same on European institutions: “It is frustrating to watch them wasting time making statements.”
Interview by Jorge Nascimento Rodrigues
English edition by JPO/LisWires
”Portugal has to sell itself in major world markets”
“Road shows can make a huge difference,” says William R. Rhodes, author of “Banker to the World”, who was senior vice president of Citigroup until his retirement two years ago.
“Portugal has to go out and sell itself in key world markets. It has to take its own steps. It has to explain what it has achieved, mobilize investment for the country, and be very specific about the issue of growth. Brazil did so at the time of the ‘Real Plan’ and Ireland is doing it.” This is the main recommendation that the New Yorker that came to Lisbon at the invitation of the Portuguese bank BIG, to talk with Portuguese officials and business leaders.
The country has to create an overall package, involving the government and the private sector. And baptizes it as “Portugal Inc”. “It happened in Brazil, South Korea and Turkey,” remembers William R. Rhodes.
Walk through the world – as he did over three decades while directing restructuring and renegotiation of sovereign debt in several continents – is indispensable. “For example, look to China. They search for good opportunities. The Chinese do not want to put their money in euro area sovereign bonds, but in investments. They know that first, Europeans must put its house in order”, he points, recalling the strategy that the Chinese have followed with regard to Greece and, more recently, with Portugal.
“the Portuguese should exceed expectations, be even more popish than the Pope, accomplish more than they have to. But not just in austerity!”
Each case is unique
To bring international investors om board for growth, it is needed to explain what is common and what is different. “Unfortunately there is a tendency to mix up different situations. But Portugal and Greece are two countries with different problems,” stresses Rhodes. “One of the lessons learned from past debt crises is that each case is different. Everything depends on the country and on the problem,” he adds.
To measure everything with the same gauge or prescribe the same therapy for every case is a recipe for disaster, refers Rhodes. And suggests that government officials meet with the private sector in small meetings to discuss ways to grow the economy.
Rhodes also notices that the lessons that derive from the crises management in emerging markets point to a tripod, “programs that combine actions for growth, to ensure internal public support, structural reforms focused on competitiveness, and medium term fiscal adjustment plans.”
Recently, he wrote on the Financial Times, where he disapproves the fact that the path pointed to to Greece, Portugal, Spain and Italy “would lead to recession, further weakening the European financial sector and increasing domestic political opposition.”
The Chinese word of choice
Rhodes is confident that “Portugal will emerge from this situation. My experience of decades tells me that all debt crises can be managed. But the Portuguese have to make the country competitive and the only solution is to work, regardless of what happens in Spain or Greece. They should exceed expectations, be even more popish than the Pope, accomplish more than they have to. But not just in austerity! Fiscal adjustment and growth is like walking and chewing gum at the same time. It’s a combination. I know it’s not easy. And it takes some help on investment. The European Investment Bank must be more active, because Eurobonds will not emerge overnight.”
“There is a path to grow. And politicians should give hope to the people. Portugal is a beautiful country with enormous untapped potential. And with a great story. The current crisis is an opportunity to change the dynamics of the economy. My favorite word is weiji, the Chinese word for crisis. In Mandarin, the two words are combined into one: wei means danger and ji means opportunity.”
“Fiscal adjustment and growth is like walking and chewing gum at the same time.
It’s a combination.”
The biggest frustration
Recognizing that you have a problem and leave the state of denial, is crucial, he points. And uses the example of Spain crisis on the issue of bank recapitalization, as illustration: “They were denying that there was a problem for too long. But time is always critical. The new government, which even has a majority, has postponed some decisions, for electoral reasons,” he says. However, for Portugal, the question of Spain is critical: “It’s Portugal’s main trading partner. Spain has to solve the problem.”
“How many summits have already occurred? Last summit in Cannes gave nothing. The ECB can’t do everything. Politicians didn’t anticipate the force of contagion and didn’t had the sense of urgency.”
Rhodes warns that a global European solution is required and fast: “It is essential to set a floor. There is no more time to waste. What Draghi did was try to gain time with the LTRO liquidity lines, while waiting for political decisions. But European politicians are late in decisions. How many summits have already occurred? Last summit in Cannes gave nothing. The ECB can’t do everything. Politicians did not anticipate the force of contagion and didn’t had the sense of urgency.” And confesses that he became concerned with the European leadership as early as 2010.
“All crises can be managed” is an axiom of Rhodes, but he admits that now “we have more cooks in the game and we no longer have the time we had decades ago – now everything flies in nanoseconds.” And above all he feels an “enormous frustration with the G20. Multiple summits and nothing happened,” he regrets. And he feels the same on European institutions: “It’s frustrating watching them wasting time making statements.”
Bill Rhodes has a special relationship with this crisis. In the 2000s he was accused of being a “Cassandra” predicting a great crisis in which most of his financial colleagues didn’t believe. Few followed his advice that it was necessary to focus on “crisis prevention”. Today, the 10 lessons of his experience are worth being studied (see “10 Lessons to deal with debt crises”).
10 Lessons to deal with debt crises:
1- Debt crises can be managed.
2- Time is the main enemy. Time flies. Control it. The clock runs now much faster than ever before and all delays lead to a deepening crisis.
3- Leadership is the key political asset.
4- This type of crisis requires fast decisions, clear communication, prompt action and persistence.
5- Each country is a unique case. Each country should be addressed as an individual case, in a specific historical framework. There is no single recipe for all borrowers.
6- The private sector should be involved from day one. You need an approach involving public and private sectors. There must be trust between all stakeholders and consensus must be obtained.
7- Panic often arises from outside perception, from the rescued stakeholders and public opinion. You must win the public opinion and convince the people of the measures.
8- Contagion is always much larger than policy makers anticipate.
9- Every sovereign debt crisis was followed by banking crises.
10- Reforms do not happen overnight. Countries need time.
PROFILE | William R. Rhodes
William Reginald Rhodes, 76, is considered one of the more seasoned and reliable “financial diplomats”, with multiple cases of sovereign debt restructuring on his portfolio, between 1979 and 2004 in Latin America, the Middle East and Asia. His name is associated to the resolution of debt crises in the Nicaragua Sandinista, South Korea, Turkey, Argentina, Brazil, Jamaica, Mexico, Peru, and Uruguay. “When I give my word, they believe me,” he writes in his book “Banker to the World”, referring to his counterparts in these countries, whether bankers or governments, whether in the International Monetary Fund, Federal or in the U.S. Department of the Treasury.
Once he gets his hands on such processes, he takes them to the end. Even under very adverse conditions of debt restructuring, as they were in Nicaragua Sandinista, surrounded by armed guerrillas in 1979. He made a bet with Fidel Castro, who didn’t believe he would convince the Sandinistas, and won a box of Cohibas.
Currently, he leads his consulting firm, William R. Rhodes Global Advisors, and travels the world lecturing on his experience. He is an Emeritus Member of the influential Group of Thirty, consisting of financial and academics, chaired by Jean-Claude Trichet, the former president of the European Central Bank.
His passion has always been history. When he was just a kid, his parents had to tell him to turn off the light and sleep, when at night he engaged reading history books. And attentively learned military history from his father. Eventually, and inevitably, he graduated in history at the Brown University, in Providence, Rhode Island. The father was a tanker’s Captain. On summer vacations from university, Bill decided to sail and travel the world on board, and dealt with multiple ports, nationalities, and continents. His desire was to follow a military career, but a fractured knee removed him from that path. He ended up getting an interview at the First National City Bank of New York, later renamed Citibank, where he worked 53 years. He served as Vice Chairman of Citigroup and Citibank, before retire in 2010.