[So what do you think Double D? Still mainly hot air?]
Financial Times; Apr 2, 2002
THE AMERICAS & INTERNATIONAL ECONOMY: IMF outlines new plan for bankrupt countries to restructure debt
By ALAN BEATTIE
Anne Krueger, the International Monetary Fund's second-in-command, called yesterday for a new international judicial panel to allow bankrupt governments to restructure their debt without being sued by private creditors.
Ms Krueger said that such a procedure would need a change in the IMF constitution to create binding international rules which could override litigation in national courts.
The speech was her first major intervention on the proposed bankruptcy procedure - often called the "sovereign Chapter 11" after similar rules in US domestic bankruptcy law - since she declared IMF support for the radical plan in November.
Since then, governments of several rich countries including the UK and France have declared their support in principle for such a procedure, while some private investors have argued against the idea. The case of Argentina, which has entered a chaotic and unplanned debt default, has also given the idea more prominence.
Ms Krueger's speech to the Institute for International Economics in Washington last night took a middle path between radical and moderate approaches.
She went beyond the limited view adopted by the US Treasury, which has suggested that a mere change in bond contracts could allow a majority of shareholders to impose a restructuring deal if a sovereign government went bankrupt. But she said that any restructuring would be supervised by an expert panel rather than the IMF - allaying private sector fears that the fund would play judge and jury in the process.
"If we are to create a better framework for the restructuring of unsustainable sovereign debt, the central feature would have to be a mechanism enabling a super-majority of creditors - across the broad range of credit instruments - to make the terms of a restructuring binding on the rest," Ms Krueger said last night.
"But a purely contractual approach cannot resolve all the weaknesses of the current system," Ms Krueger added.
Bond clauses which allowed a majority of investors to impose a restructuring deal on the minority did not allow a country with multiple bond issues to bind all its creditors into an agreement, she said.
A change in the IMF's constitution - which would require 85 per cent of country shareholder votes - would allow "the creation of a single international judicial entity that could arbitrate disputes and oversee voting," Ms Krueger said. IMF officials suggested this could be modelled on World Bank panels which arbitrate on disputes under trade agreements.
It would also "prevent creditors from shopping around for jurisdictions in which they could enforce their legal claims through the courts," by creating a treaty obligation which overrode national law, she said.
The push for a regulated sovereign bankruptcy procedure has gained new impetus in recent years following the case of Peru, which was sued by a New York-based hedge fund following a debt restructuring.
Since Ms Krueger's initial speech in November, the IMF has consulted widely with lawyers and investors in the private sector.
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