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calls for an international bankruptcy process Anne Krueger, the IMF's first deputy managing director, made the surprise call in a speech late on Monday night in Washington. Describing the plan as "the missing element we must provide" in the global financial system, Ms Krueger said the IMF should have the power to impose temporary standstills on debt payments while countries worked out restructuring deals with creditors. "At the moment, too many countries with insurmountable debt problems leave it too long, imposing unnecessarily heavy economic costs on themselves and on the international community that has to help pick up the pieces." In recent years, several governments, including Peru, Ecuador and now Argentina, have found themselves in difficult and often litigious attempts to restructure their debts. Although the IMF would not directly take part in negotiations between debtors and creditors, the new scheme would stop bond-holders from taking countries to court during the standstill. It could well involve the debtor country imposing capital controls to prevent money fleeing the country, Ms Krueger said. The IMF's management will put the proposal to the IMF's governing board of shareholder countries next month. The move would probably need approval by legislatures in many shareholder countries and could require the amendment of the IMF's constitution. Ms Krueger said the implementation would take two to three years and would not affect the IMF's current negotiations with troubled countries, including Turkey and Argentina. Several of the IMF's large shareholder governments, including the UK, US and France, have expressed interest in an international bankruptcy regime, based on the domestic US Chapter 11 bankruptcy framework, long proposed by many experts. The US Treasury yesterday indicated its support for a formal framework for crisis resolution. On Ms Krueger's suggestion, a senior US Treasury official said: "We welcome new ideas and we'll consider them along with others that have been or are being proposed." Ms Krueger's speech was the first indication of strong support from the IMF's management. "I have been advocating such a scheme for 15 years and am pleased and surprised that so much progress has been made so quickly," said Jeffrey Sachs, head of the Centre for International Development at Harvard University. Prof
Sachs said that, though he had not seen the detail of the proposal, an international
bankruptcy scheme would "fill a gaping hole in the financial system which has
been evident for decades, if not centuries". |
