Eyeing the Brady Plan as a Model for Greece

by Stephen Fidler

Wall Street Journal
June 24, 2011

Charles Dallara, now managing director of the Institute of International Finance, spent 15 years at the U.S. Treasury, much of it agonizing over Latin America's debt crisis of the 1980s. While there, he was one of the architects of the Brady Plan, an initiative named after Treasury Secretary Nicholas Brady in which banks were given incentives to make concessions on their loans to Latin American governments.

The idea was to encourage banks to swap their loans for bonds that would lighten the countries' debt burdens. The bonds would carry "enhancements"—guarantees of interest for a year or two and a guarantee of ultimate repayment—to encourage the banks to switch. The guarantees were U.S. Treasury bonds bought by the borrowing country and placed in escrow accounts—to be released to the bond holder in the case of a default.

Mr. Dallara is now in Athens, talking to Greek politicians, including Prime Minister George Papandreou, officials and bankers. He says he's working informally on behalf of the banks and financial institutions that comprise the IIF membership to discuss how private sector creditors can help Greece by contributing to a new rescue program. And he says it's going to be harder to find a way to involve private bondholders in a new bailout for Greece than it was to design the Brady initiative.

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