G7 finance ministers have agreed a framework to include the private sector in future crisis bailouts. It proposes various measures governments could take ranging from negotiating voluntary credit lines with private banks to declaring a debt standstill. It is a compromise between the US which favoured a “case by case” approach and the Europeans who favoured formal “rules of the game”. The IMF will work out the technical details for discussion at the Autumn meetings. The framework may be quickly drawn upon by countries experiencing problems, including Pakistan, Ecuador, the Ukraine and possibly Romania.
The G7 do not want a formal debt standstill mechanism because this would involve changing the IMF‘s Articles of Agreement and national legislation. A formal mechanism might also make investors leave countries rapidly to avoid involvement in it, and could raise the cost of borrowing. UK NGOs argue that the IMF should not have the principal role in a debt standstill and workout process, because it and its major shareholders are creditors.
