Finally resolving debt resolution?

26 June 2013

A March IMF policy paper examined long-standing approaches to debt crisis management (see Update 33, 28) including for the first time assessing the civil society proposals for a fair and transparent arbitration process. The study also looked at bail-in procedures to impose losses on private and official lenders (including as a prerequisite of further IMF lending), measures against vulture funds and a revamped Sovereign Debt Resolution Mechanism in light of the specific experiences of Jamaica, Grenada and the Dominican Republic, countries which have repeatedly returned to the IMF for additional lending over several decades. It also proposed mechanisms to overcome the challenge of ‘holdout’ creditors blocking restructurings, which happened in the case of Argentina (see Update 79).

The study was narrowly framed as how to best restore countries’ debt sustainability. It acknowledged that “debt restructurings have been too little and too late” and that IMF money has been used “to simply bail out private creditors”, but Tim Jones of UK NGO Jubilee Debt Campaign pointed out that the study “ignored all the social impacts of debt crises”. Bodo Elmers of European NGO network Eurodad argued that the IMF fails to analyse how “debt restructuring can make a more effective contribution to … development goals, poverty eradication and human rights. However, this goes beyond the IMF’s role and mandate. It is an issue for the UN to solve”.

In April, the IMF released a policy paper as part of its review into its existing debt limits policy, which sets the restrictions on how much and what kind of debt countries can contract under an IMF-supported programme. The policy was last modified in 2009. The Fund’s executive board requested that specific reform proposals be formulated, and that consultations take place with government authorities, lenders, other multilateral institutions, and civil society organisations on the design of the operational reforms.