On 8 August, IMF number two Anne Krueger participated in a meeting organized by the Swiss Finance Ministry to discuss IMF proposals on creating a sovereign debt restructuring mechanism. The meeting was held the day after the Fund had agreed to provide Brazil its biggest ever rescue package.
Krueger gave an update on the Fund’s approach to possible mechanisms for countries facing unpayable debts (see Bretton Woods Update 26 and 28). She apparently favours establishing a Dispute Resolution Forum bringing all stakeholders together. Officially the Fund is following a ‘two-track approach’ combining Krueger’s institutional approach and a more market-oriented approach involving introducing clauses into bond contracts between countries and creditors. The institutional approach would require an amendment of the Fund ‘s Articles of Agreement with a 85 per cent majority vote at the IMF Board, thus giving the US government an effective veto.
NGOs and researchers argue that the IMF‘s loans should be included in any arbitration process but the IMF has consistently rejected this on the grounds that it would threaten its very existence. In Geneva, Krueger also rejected accusations that the IMF was trying to expand its mandate by taking a central role in the framework rather than submit to an impartial body.
Open support in the South for the IMF‘s proposals appears scarce. South Korea is said to back the changes as they would have saved them billions of dollars if they had been in place at the time of the Asian crisis. But some civil society groups such as Jubilee South have rejected debt arbitration, maintaining their demand for unconditional and immediate debt cancellation. Krueger said she now plans to draft a new paper and seek approval from the IMF‘s member governments.
Sovereign debt restructuring: A US perspective, John Taylor
Background on sovereign debt restructuring, Derivatives Study Center