[stop-imf] Wall St. to IMF: No on your bankruptcy plan

[Robert Weissman]

>From the World Bank's Press Review, 9/24/02

============================================================
Private Sector to Urge G7 Not to Back IMF Bankruptcy Plan  
============================================================

The private sector will urge the G7 nations this week in Washington not to
support the IMF's proposal for a Chapter 11-style procedure for debtor
nations, Dow Jones reports, citing sources familiar with the matter. The
major emerging markets industry groups will meet with G7 deputies on
Thursday [ahead of] the IMF's annual meeting to push the use of so-called
collective action clauses in sovereign debt contracts.

"We are hopeful that we can persuade the G7 deputies that progress can be
made on collective action clauses to make a sovereign bankruptcy regime
unnecessary," said a person familiar with the talks. "I'm hopeful without
being optimistic that we will hear good news later this week" on the
matter.

IMF Deputy Managing Director Anne Krueger said last week that she expected
a major endorsement of her controversial international bankruptcy plan at
the annual meeting. Such support would involve drafting language to amend
the IMF's charter that establishes a bankruptcy process for troubled
sovereigns similar to the procedure used by US companies.  The amended
language on the IMF's Articles of Agreement would be debated during the
multilateral lender's spring meetings next April.

Krueger first floated her proposal late last year, sparking an outcry on
Wall Street as investors argued the proposal compromised creditors'
rights, raised countries' borrowing costs and was extremely cumbersome to
implement.  Also, the market remains somewhat uneasy about introducing a
new financial architecture nine months after Argentina's historic $141
billion debt default and amid jitters about Brazil's ability to finance
itself in the medium term.

The "starting point would be for the official sector to walk away," from
the IMF bankruptcy plan, a buy-side source said.  In June, the major bond
organizations threw their support behind the

broad use of collective action clauses, a measure that was aggressively
promoted by the US Treasury.  Commonly used in Europe, such clauses allow
a super-majority of creditors to make binding decisions for the entire
group. Currently, most bond contracts require 100 percent of bondholders
to agree to restructuring deals.