US blocks IMF debt proposal
From Gary Duncan in Washington

April 14, 2003 


PLANS to set up a radical process for countries in financial distress effectively to declare “bankruptcy” were shelved indefinitely at the weekend after being undercut by opposition from Washington. 
The far-reaching proposals, drawn up by the International Monetary Fund, were backed by a large majority of IMF members, including Britain, which supported the scheme. 

The Sovereign Debt Restructuring Mechanism would have created a procedure under which financially troubled countries could call a moratorium on servicing their private and public sector debt. Restructuring without obstruction by individual creditor institutions or countries would then have been possible. 

The scheme would have acted as a curb on the activities of “vulture funds” that seek to exploit countries facing debt crises. 

But the plans ran up against resistance from the US Government. Wall Street’s big institutions, led by investment banks, were opposed to the concept on the ground that they could potentially incur heavy costs. The reluctance of the US Treasury and the White House to confront the Wall Street lobby ensured that the plans were suspended, although British and other officials insisted that they may be resurrected and that background work would continue. 

Finance ministers from the Group of Seven industrial countries agreed an alternative system that allows emerging-market countries issuing government bonds to include provisions designed to make agreement with creditors on restructuring easier to achieve. 

The IMF also set a limit on the amount that it is prepared to lend to countries in trouble.