FT: Nicholas Brady hits at IMF for 'playing with fire' in allowingbond default (fwd)

[Robert Weissman <rob@essential.org>]

Financial Times
Monday September 20 1999
-day's top front page news-
Brady hits at IMF for 'playing with fire'
By Edward Luce in London
Private capital flows to emerging markets would be put at risk by the
International Monetary Fund's decision to allow Ecuador to default on its
bonds, said Nicholas Brady, former US Treasury secretary.
Mr Brady said the IMF was playing with fire in giving Ecuador permission
last
month to renege on its debts to western investors. By allowing Ecuador to
default on its next $60m interest payment on more than $6bn worth of Brady
bonds, the IMF would deter western investors from putting money into other
emerging markets, he said.
The bonds, named after Mr Brady, are backed up by the collateral of US
Treasury bonds and are the largest asset class of emerging market debt in
the
international markets.
His comments, which come as the annual meetings of the IMF and World Bank
start today in Washington, are likely to fuel private sector concern that
the
IMF has altered its policy on emerging market economies.
The IMF has suggested that it is in favour of more "burden-sharing" between
private and official lenders in the event of a rescheduling of an emerging
market's debts. This is in response to criticisms that it simply bailed out
private creditors under previous reschedulings.
Western bankers argue that "burden-sharing" would increase the cost of
capital for emerging markets. "The IMF should not create a new policy based
on the weakest link in the chain [Ecuador]," said Mr Brady.
Ecuador is the first country to default on its Brady bonds. "The IMF should
not be in the business of telling a country to default on its debts to the
private sector," said Mr Brady.
Under previous reschedulings, including Mexico in 1995 and Asia in 1997,
the
IMF supplied loans to enable emerging market governments to repay their
private sector creditors in full.
IMF officials say they will treat each emerging market crisis on a
"case-by-case" basis.