[stop-imf] IMF bankruptcy plan

[Robert Weissman]

IMF in support of bankruptcy plan
By Alan Beattie in London
Financial Times
Published: November 27 2001 19:40  

The International Monetary Fund's management has thrown its weight 
behind a radical plan for an international bankruptcy procedure, 
allowing indebted governments to seek legal protection from their 
private sector creditors. 

Anne Krueger, the IMF's first deputy managing director, made the 
surprise call in a speech late on Monday night in Washington. 

Describing the plan as "the missing element we must provide" in the 
global financial system, Ms Krueger said that the IMF should have the 
power to impose temporary standstills on debt payments while 
countries worked out restructuring deals with their creditors. 

"At the moment, too many countries with insurmountable debt 
problems leave it too long, imposing unnecessarily heavy economic 
costs on themselves, and on the international community that has to 
help pick up the pieces," she said. 

In recent years, several governments, including Peru, Ecuador and 
now Argentina, have found themselves in difficult and often litigious 
attempts to restructure their debts. 

Although the IMF would not directly take part in negotations between 
debtors and creditors, the new scheme would stop bondholders from 
taking countries to court during the standstill. It could well involve
the 
debtor country imposing capital controls to prevent money fleeing the 
country, Ms Krueger said. The IMF's management will put the 
proposal to the IMF's governing board of shareholder countries next 
month. 

The move would likely need approval by legislatures in many 
shareholder countries, and could require the amendment of the IMF's 
constitution. Ms Krueger said the implementation would take 2-3 
years, and as such would not affect the IMF's current negotiations 
with troubled countries including Turkey and Argentina. 

Several of the IMF's large shareholder governments, including the 
UK, US and France, have recently expressed interest in an 
international bankruptcy regime, based on the domestic US Chapter 
11 bankruptcy framework, long proposed by many academic experts. 

Ms Krueger's speech is the first indication of strong support from the 
IMF's management. 

"I have been advocating such a scheme for 15 years, and am pleased 
and surprised that so much progress has been made so quickly," said 
Jeffrey Sachs, head of the Center for International Development at 
Harvard University. 

Prof Sachs said that, though he had not seen the detail of the 
proposal, an international bankruptcy scheme would "fill a gaping hole 
in the financial system which has been evident for decades, if not 
centuries." 

But the scheme is likely to be opposed by private sector bondholders, 
who have consistently objected to the IMF interfering in private 
contracts. It could require amendments to the US law governing bond 
contracts, to allow a majority rather than a unanimous vote of 
bondholders to reach a deal with a debtor government.