Gitlin & Company, LLC

Transcription

1 Presentation for Special Colloquium on Privatization and Insolvency and Restructuring: New Directions for Transforming State-owned Enterprises Richard A. Gitlin Astir Palace, Athens February 5, 2011

2 Economic theory must give way to Economic Strategy 2

3 In an economic crisis, most attention and resources are devoted to the financial sector. But it is the real economy that creates growth and employment. A delay in fixing the real economy is very costly to both the economy and financial institutions. 3

4 When viable companies are not fixed: They have little money to invest in their future become weaker. Loans to banks become less valuable causing more capital impairment. 4

5 When non-viable companies are not liquidated or sold they hurt competing viable companies, the productive assets are not transferred to people who can use them to create more economic value and employment, and the loans to the banks become less valuable causing more capital impairments. 5

6 Fixing viable companies and recycling assets of non-viable companies is essential to create a platform for growth of the economy and employment. 6

7 The restructuring process is not simply fixing a balance sheet It is positioning the company for growth of value and jobs. Fixing the balance sheet of a company that cannot compete effectively does damage to the economy it is not neutral. If Government funds are to be utilized, the policy must reflect the value to the nation why will it make the economy stronger, better to compete while serving the public interest? 7

8 Many countries have an underdeveloped infrastructure for fixing trouble companies; Laws Customs Professionals This is inadequate for normal times and we are in extraordinary times with larger parts of economies in trouble. Even those with seasoned restructuring systems may need to take extraordinary actions to fix their economies. Restructuring need interim and long term capital which is on short supply these days both private and public capital is necessary. 8

9 Improve countries laws and systems for restructuring; Establish a quasi-government organization for expedited restructuring with public (and private) funds; Government direct intervention in industry and companies using existing restructuring laws; 9

10 Restructuring laws are a framework for doing deals. Deals can be done: Out of Court INSOL Principles Modified Out of Court / Court Process Pre-packaged US / UK Full Legal Proceeding 10

11 Handle crisis that existing systems can not effectively handle. Allocate government/ifi funds to preserve, rebuild and reposition the economy. 11

12 Example: General Motors / Chrysler Four Elements: 1. Policy 2. Decisions 3. Execution 4. Management / Exit 12

13 This is not a wait-it-out economic crisis. Real economies and companies must not only be repaired, they must be repositioned. Delay makes problem loans less valuable exposing a second capital crunch. Delay extends the time to rebuild employment. Be prepared to utilize quasi-government organizations. Although there have been many improvements made in restructuring laws and systems, few countries are up to the necessary task. Must use significant energy and resources for putting in place systems to expedite recovery of the real economies in an economic crisis. 13