IMF's sovereign bankruptcy plan meets opposition
By Mark Egan, Wed January 22, 2003 

WASHINGTON, Jan 22 (Reuters) - The International Monetary Fund's plan to set up a type of international bankruptcy court to help nations unable to pay their debts to restructure them was meet by a wall of criticism on Wednesday. 
A conference held at the international lender's headquarters to discuss its plan was greeted with opposition from the emerging market nations the scheme is aimed at helping, by Wall Street, by the United Nations, by non governmental organizations and others. 

The lender's most powerful shareholder, the United States, reiterated that it would prefer other options to be tried before the IMF's plan. The Paris Club of creditor nations said it has yet to come up with complete opinion of the plan. 

While the conference produced some consensus on the need to do something to help nations in trouble fix problems caused by having unsustainable debts, there was little agreement on exactly what to do about it. 

"There are concrete reasons at least to express some doubts about the mechanism," said Agustin Carstens, Mexico's deputy minister of finance and public credit of the IMF's plan. 

The IMF's proposal -- called the Sovereign Debt Restructuring Mechanism -- would give nations a framework to negotiate a debt restructuring with creditors and would also set up a panel of judges to arbitrate disputes in those talks. 

The IMF hopes its plan will lead to simpler debt restructurings which would be more transparent and efficient than the current system, where rogue investors can delay restructurings by suing for full payment in the courts. Wall Street, wary of interference from a new bureaucracy, opposes the scheme, saying the use of specific clauses in bond contracts would be a simpler solution. 

Indeed, Carstens said he shared some of Wall Street's concerns that the IMF's plan could increase the perception that more nations would default -- something that could increase the cost of issuing bonds for nations like Mexico. 

Carstens said that the IMF's plan is, "perceived as inviting debtors to unnecessarily declare defaults. That will increase the pricing of debts and make it more difficult for emerging markets to tap international markets." 

Others from emerging markets at the conference expressed a similar view, as did representatives of Wall Street. 

Ann Pettifor of London's Jubilee Research, a group best known for its efforts at securing debt relief for the world's poorest nations, was vociferous in her opposition to the IMF's plan. Saying that the plan was "driven by institutional self-interest" to increase the IMF's role, she derided the fund's lending policies as "robbery" and "negligence." 

Calling the plan, "fundamentally flawed" and "IMF business as usual," she said it would not ultimately help nations obtain a more viable debt profile and urged the lender to refine its plan further to make it more even handed. 

Representing the IMF at the panel, special advisor to the lender's managing director Jack Boorman, voiced "absolute surprise" at Pettifor's stance. Still, he said more tinkering might help the IMF's plan and build support for it. He also insisted Argentina's economic collapse in recent years would not have been so deep or disruptive were such a plan in place. 

A representative from the United Nations said a better approach to the problem of ensuring more orderly debt restructurings would be through voluntary mediation. 
The IMF first put forward its proposal in November, 2001, in an effort to plug what it sees as a major hole in the global financial system. The issue has been given impetus by the economic meltdown in Argentina -- a nation that suffered a messy debt default and needed more than a year of tortuous talks with the IMF to broker the most threadbare of aid deals. 

Since first putting its plan forward, the lender has repeatedly refined its plan but has failed to quell stiff opposition from Wall Street, emerging market nations and others. 

Earlier on Wednesday, U.S. Council of Economic Advisers Chairman Glenn Hubbard said he would prefer more voluntary debt restructurings. Hubbard suggested the IMF's plan be tried out on a voluntary basis first to see if it would work -- something he said would better frame the debate for all parties.