In addition to extending the IMF‘s role, its governors have been examining measures to prevent future financial sector crises. These include:
- strengthening IMF surveillance, and IMF options when countries refuse to heed its advice;
- enhancing the roles of the IMF and other international financial institutions in helping to reform banking sectors;
- strengthening IMF data dissemination standards, ensuring that data is complete and current;
- clarifying investors’ responsibilities.
While strengthening surveillance and improving transparency are welcome, the most controversial issue is how to involve the private sector. NGOs have particularly criticised the IMF‘s failure to bring private sector debtors and creditors together quickly to agree how to restructure debts in Asia. The US and Japanese governments, not the IMF, pushed for restructuring deals in Korea and Thailand.
NGOs are concerned that the public sector should not shoulder the burden of debt repayment; and that an international debt rescheduling mechanism should be established.
Thai and Korean governments had to guarantee debt repayments before creditors would roll-over the private sectors’ debts. Coupled with the fact that the governments must repay the bailout loan packages, private sector debt has effectively become public debt. However, while the G7 governments agree that strong signals should be sent to investors that they should not expect to be bailed out, they are not discussing how to do this. Instead, they have been considering:
- extending IMF finance to governments to repay private sector debts;
- imposing a temporary moratorium on creditor litigation, to ensure all creditors are treated similarly;
- encouraging strong national bankruptcy procedures; and
- introducing a provision into bond contracts that would specify how payments would be restructured in the event of a crisis.
None of these mechanisms would ensure that private investors and institutions shoulder their share of the financial burden, and it is very unlikely that they will all be agreed.
UK officials do not support the development of an international private sector debt mechanism on the grounds that it would distort the market. The Chancellor has said that he wants to encourage governments to strengthen national bankruptcy procedures.
See the report on: www.imf.org
See also the useful G7 Finance Ministers report. May 1998, Strengthening the Architecture of the Global Financial System, from the UK Treasury (www.hm-treasury.gov.uk) or the Bretton Woods Project.