[stop-imf] NYT: Big Banks Step Up Efforts Against I.M.F. Debt-Relief Plan

[Robert Weissman]

Big Banks Step Up Efforts Against
I.M.F. Debt-Relief Plan
=======================

By EDMUND L. ANDREWS
New York Times
12-19-2002

WASHINGTON, Dec. 18 -- Big international banks are
counting on the ouster of Treasury Secretary Paul H.
O'Neill to help them block the creation of a bankruptcy
system of sorts for nations drowning in debt.

In September, Mr. O'Neill backed efforts by the
International Monetary Fund to propose an international
process under which a country like Argentina might
renegotiate its debt with a committee of creditors.

Big international banks, which hold billions of dollars
in loans to governments around the world, have bitterly
fought the idea because they fear that the new rules
would protect insolvent governments even more than
ordinary bankruptcy laws shield insolvent companies.

On Tuesday, an alliance of banks, bondholders and
institutional traders said the plan was based on "false
assumptions" and was essentially unworkable in any
form.

The alliance, whose members include banks like
Citigroup and J. P. Morgan Chase of the United States
and European banks like UBS and Deutsche Bank, said
that "no changes in any specific aspects" of the plan
would "alter their serious concerns about the
proposal." The alliance is headed by the Institute of
International Finance, a lobbying group in Washington.

The financial collapse of Argentina over the last year
has made the issue of debt restructuring more urgent to
governments around the world.

Fund officials argue that the world needs a system that
will make it easier to anticipate a financial crisis
and then react to it. The essence of its plan would be
to create a set of rules under which a government would
be able to negotiate a debt restructuring if it could
reach agreement with creditors holding 75 percent of
its debt.

One advantage of such rules, officials argue, is that
the restructuring process could not be dragged out by
one or two creditors who refuse to sign onto an
agreement.

Mr. O'Neill infuriated many financial institutions by
resolutely supporting the idea of a "two-track
approach" to sovereign debt. The first approach, which
private banks tend to support, calls for writing new
clauses into loan contracts that would set up
procedures for dealing with countries in danger of
defaulting on its loans.

The second track would create a set of international
rules and procedures, possibly under the auspices of
the fund, about when a country is effectively bankrupt
and what to do.

Mr. O'Neill did not endorse a specific approach for the
fund, but he joined other international leaders in
September by calling on the I.M.F. to offer a specific
proposal by next April. At the time, he compared the
two approaches to the need for having more than one
tool in a tool kit.

Thomas Dawson, a spokesman for the fund, dismissed the
complaints of bankers as "old wine in new bottles,"
adding that "the two-track approach has broad
international support" from governments around the
world.

But even before Mr. O'Neill was abruptly dismissed two
weeks ago, top officials at the Treasury Department had
begun backing away.

John B. Taylor, under secretary of the Treasury for
international affairs, in a speech to securities
traders on Dec. 9, conspicuously omitted any direct
description of the fund's approach and spent the whole
speech promoting the idea of voluntary collective-
action clauses in bond contracts. John W. Snow,
President Bush's choice to succeed Mr. O'Neill, has not
stated his views on the issue, and Treasury officials
emphasized they do not want to speak for him.

But Gerald P. O'Driscoll, an international economist at
the Heritage Foundation, a conservative research
organization in Washington, said Mr. O'Neill was the
only important person in the Bush administration who
actively encouraged the idea of an international debt-
relief process.

"That was O'Neill," Mr. O'Driscoll said. "I think what
he was saying was that we should try to come up with an
idea. His going will enable them to back off and say it
wasn't what they had in mind."

Tony Fratto, a spokesman for the Treasury, said the
administration still supports the idea of developing
two separate proposals but emphasized that it has not
yet committed itself to the fund's approach.

"If they can convince us this is the best way to go,
then we will go ahead with it," Mr. Fratto said. "But
they are going to have to convince us first."

Big financial institutions are not the only groups
opposing the plan. Big developing countries like
Brazil, Mexico, Poland and Turkey are also against it,
because they fear the new procedures will scare off
lenders and raise the costs of their borrowing in the
future.


http://www.nytimes.com/2002/12/19/business/worldbusiness/19FUND.html