IIF opposes IMF moves to get private sector to share burden

[Robert Weissman <rob@essential.org>]

IMF, G7 should discourage enforced rescheduling of private credit: IIF
Date: Thu Sep 16 20:29:27 CDT 1999

   WASHINGTON, Sept 16 (AFP) - The IMF and the World Bank should discourage
attempts by developing countries to seek the forced rescheduling of debts
owed private creditors, the head of a global finance association said here
Thursday.
   Charles Dallara, managing director of the Institute of International
Finance (IIF), released a letter he was sending to the heads of the policy
making bodies at the  International Monetary Fund and the bank.
   The IIF is the global association of some 300 banks and financial
institutions.
   The letter is aimed at encouraging the International Monetary Fund and
World Bank at their annual meetings here next week "to focus on actions that
will help lay the basis for renewed confidence in emerging markets finance
and sustainable private flows."
   What needs to be avoided, according to Dallara, are approaches that
mandate private sector "burden sharing" when economies get into trouble.
   In the past 10 years private investors and lenders had provided 1.7
trillion dollars to emerging market economies, compared with just 320
billion from official sources, according to Dallara.
   "The investors or lenders who provided this capital were motivated by
attractive returns, not by official pressure to share a burden," he argued.
   "Nevertheless, without these private flows, emerging markets growth and
global growth would have been lower."
   Lately, according to the letter, investor anxiety has risen in response
to efforts by authorities in Pakistan, Romania, Ukraine and Ecuador to seek
the forced re-scheduling from private creditors.
   Dallara called such measures "counterproductive."
   "Involving the private sector in resolving financial crises is a valid
goal," he wrote, "but 'burden-sharing is a flawed concept for the pursuit of
that goal."
   The public and private sectors may share an interest in global growth,
but they have different responsibilities.
   "Private lenders and investors have a responsibility to maximize
shareholder value. Officials have broader responsibilities to foster global
security and to advance social objectives."
   Dallara stressed that the way to deal with crises was through "timely
consultations" by authorities with key investors and creditors rather than
through forced burden-sharing.
   His letter was addressed to Gordon Brown, British chancellor of the
Exchequer and chairman of the IMF's interim committee and Thailand Finance
Minister Tarrin Nimmanahaeminda, who is also chairman of the World Bank-IMF
development committee.