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Taipei - The head of Pimco, the world's biggest bond fund,
predicted that Greece and other European economies would default on their debts
to resolve their problems as the euro area deals with its debt crisis.
Greece's government won a vote of confidence late on
Tuesday, a crucial step towards securing further short-term and longer-term
financial aid from the European Union and the International Monetary Fund as
the country tries to avoid the eurozone'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 €12bn tranche of
aid money.
Without the loan, Athens will run out of cash next month and
policymakers fear a default would send shock waves through the global financial
system.
European officials are also considering a second bailout
package worth an estimated €120bn that is meant to extend Greece's year-old
€110bn 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 US sovereign bonds. The fund's $236.9bn Pimco Total Return Fund
said in March it had completed a move in February to drop all its investments
in US 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 US government debt to shift money into more attractive
investments, such as debt issued by the likes of Australia, Canada, Brazil and
Mexico.
