Friday, June 24, 2011
PIMCO's El-Erian predicts Greece, others will default
Greece's government won a vote of confidence late on Tuesday, a crucial step toward securing further short-term and longer-term financial aid from the European Union and the IMF as the country tries to avoid the euro zone's first sovereign debt default.
"For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default," Mohamed El-Erian, chief executive of PIMCO, told reporters in Taipei on Wednesday via a video conference.
He didn't identify which economies other than Greece he was referring to.
El-Erian has suggested in the past that Greece would default and that Europe risks wasting money for nothing by pumping billions of dollars into the ailing economy.
"Nothing has been done to enhance growth," he said. "No single (Greek) indicator has shown strength. They are afraid a restructuring would hurt European banks."
He doubted a Greek default could trigger another global financial crisis.
"Ireland, Portugal, Italy and Spain would have to be involved. But Greece is too small in terms of economic impact," El-Erian said.
PIMCO, or the Pacific Investment Management Co, is based in California and is the world's biggest bond fund manager with nearly $1.3 trillion in assets under management.
Horacio Valeiras, chief investment officer of fund firm Allianz Global Investors Capital (AGIC), predicted that Ireland and Portugal, countries that also received financial bailouts in the wake of the global credit crisis, will have to restructure their debts.
PIMCO and AGIC are units of German insurer Allianz, which organised briefings for the media and investors.
"We are not investing in Greece, Ireland, Spain and Portugal," said Valeiras, who appeared in person at the press briefing. He said default in Greece was "inevitable".
The confidence vote in Athens came after a European ultimatum requiring the debt-choked state to agree to a five-year austerity package of measures within the next two weeks or miss out on a 12-billion euro tranche of aid money.
Without the loan, Athens will run out of cash next month and policymakers fear a default would send shockwaves through the global financial system.
European officials are also considering a second bailout package worth an estimated 120 billion euros that is meant to extend Greece's year-old 110 billion euro deal and fund it into 2014.
Sovereign debt elsewhere in the developed world has also soared since the global crisis, affecting investment decisions.
The fiscal weight of the global financial crisis prompted PIMCO to dump U.S. sovereign bonds. The fund's $236.9 billion PIMCO Total Return Fund said in March it had completed a move in February to drop all its investments in U.S. government debt.
Earlier this month, Tomoya Masanao, the head of Japan portfolio management for PIMCO, said the fund manager had cut holdings of Japanese and U.S. government debt to shift money into more attractive investments, such as debt issued by the likes of Australia, Canada, Brazil and Mexico.