PIMCO’s Mohamed El-Erian told Bloomberg Television that the probability of Greece defaulting or restructuring its debt has increased since the arrest of IMF fund head Dominique Strauss-Kahn.
On Dominique Strauss-Kahn’s arrest and the impact on the IMF:
“This stunning development could not have come at a worse time. The IMF is like an army and the general is very important in that institution. The IMF is involved right now in the debt crisis in Europe, newly democratic countries like Egypt are looking to it for help and you need the IMF to coordinate this global healing. It is the worst possible time to lose your general.”
On whether a country like Greece could default because of IMF scandal:
“Don’t underestimate how important Mr. Dominique Strauss-Kahn has been to getting all of Europe on the same wavelength…Mr. Dominique Strauss-Kahn, with his political prestige, has been playing the role of conductor, getting everybody to play from the same sheet of music.
Without him, it’s going to be much more difficult to coordinate the European governments.”
On whether a new IMF head might come from an emerging market (NYSE:EEM):
“The rule that the head of the IMF should come from Europe, and the head of the World Bank should come from the U.S., made a lot of sense back in 1944 because those were the economic powers and the political powers. Today, the world has changed. It is critical to have an open, transparent and merit-based system. Let that be the guide and see what comes up in terms of nationalities rather than turn it around and choose the nationality first and then look for the person.”
El-Erian on his name being brought up as a potential new IMF head:
“I am very happy in California. I have one of the best jobs in the world. One of the things I would like to see is a process, rather than speaking of individuals…For example, the prime minister of Germany saying that Europe should ‘retain’ this role. Other people saying it’s the ‘turn’ of emerging economies. Let’s talk about the qualifications needed and let’s talk about who out there meets these qualifications.”
El-Erian on whether a country could default or a restructuring package could happen because Strauss-Kahn is not in power:
“That is exactly what I’m saying. I’m saying the specific case of Greece where the IMF has paid a critical role. The probability of Greece having a debt restructuring and a debt default has gone up after the stunning news on Saturday.”
El-Erian on the debt talks in Washington:
“There is some progress towards mini bargains, but not the grand bargain that’s going to be required…The grand bargain is going to have to say, this is the destination, this is what the journey looks like, and we don’t need to agree on every step but let’s get going before the problem gets worse.”
El-Erian on his portfolio and how long he is holding cash:
“[Our guidelines are] minimize your exposure to financial repression. Two, get ready for mightily higher inflation. Three, recognize that we are living in a global world which is a multi-speed world. While the advanced economies are going to hobble through, the emerging economies (NYSE:EEM) are going to continue to do well. Look for economies that are not going to impose financial repression because they are sound balance sheets and because they are growing. If you look around the world, there are many that meet that. You can go to Canada (NYSE:EWC), you can go to Australia (NYSE:EWA), you can go to a number of emerging economies.”