|
Imf allows bankruptcy { September 29 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A17317-2002Sep28.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A17317-2002Sep28.html
IMF Advances 'Sovereign Bankruptcy' Concept
By Paul Blustein
Washington Post Staff Writer
Sunday, September 29, 2002; Page A17
Top economic policymakers attending the annual meetings of the International Monetary Fund and World Bank agreed yesterday to speed efforts to develop a "sovereign bankruptcy" procedure for countries in debt crises.
Making it easier for countries facing catastrophic defaults to restructure debts would be a significant change in the global financial system after crises that have rocked South Korea, Russia, and -- more recently -- Argentina and Brazil. Although proponents do not claim that the procedure would eliminate all such crises, they believe it could substantially reduce their severity.
The IMF's policy-setting committee directed the fund's staff to draft a detailed proposal by next spring. The panel, representing the IMF's 184 member nations, endorsed the idea in principle last spring after an outline was put forward by Anne Krueger, the fund's deputy managing director.
Perhaps more important, Treasury Secretary Paul H. O'Neill, whose department has waxed hot and cold on the idea, indicated that he is prepared to push strongly for it and another approach, in which countries and their creditors would be prodded to adopt more flexible loan terms.
But while officials voiced satisfaction with the progress they made on that issue and a few others, their efforts to convey an image of mastery over the global economy were marred by confusing statements over what Japanese policymakers might do to shore up their nation's ailing banking system. Anxiety has risen in recent weeks that Japan's banking problems might erupt into a full-fledged crisis, as the nation's stock market has plumbed 19-year lows.
Finance Minister Masajuro Shiokawa, who late last week said he would tell his colleagues from the Group of Seven major industrialized countries about plans that would include an injection of public funds into the banks, veered back and forth Friday night and yesterday over exactly what he had said in a meeting with O'Neill. At some points he declared that he had raised the subject of addressing the banks' bad loan problems, and at other points he said he had not. Late Friday night his top aides gave Japanese reporters a written correction to his account of what he had said, a step that prompted an angry reaction from him the following morning.
Shiokawa's wobbly performance did not entirely dash hopes that the plans he alluded to might materialize into a significant initiative for dealing with Japan's prolonged economic slump. But after numerous instances in which Japanese policymakers have disappointed their G-7 counterparts by failing to take drastic measures, the latest episode caused even more head-shaking than usual.
At a news conference yesterday morning, O'Neill, who had vowed publicly to ask Shiokawa "exactly what is it you're doing," made it clear that he had not received an answer that satisfied him.
O'Neill said he had asked what impact on gross domestic product would result from the initiatives the Japanese had in mind, including the recent announcement by the Bank of Japan that it would buy some of the stocks held by the nation's banks. Shiokawa responded by reciting a forecast of about zero growth for this year, 1 percent for next year and 1.5 percent to 2 percent for 2004.
"What I got was the minister's view of what their coordinated policy actions will do to GDP," O'Neill said. "I did not come away with an understanding of how their particular interventions are going to contribute to the change."
O'Neill was acerbic about the negative posture of many banks and large investors to a sovereign bankruptcy mechanism. Financiers strongly oppose the plan sketched out by Krueger, which would involve changing laws in many nations to limit some rights of creditors of a country undergoing a debt crisis. Part of Krueger's idea is to enable countries to declare "standstills," or temporary suspensions of debt payments, when faced with panicky withdrawals of money.
Since the alternative to an orderly debt restructuring is often a default that can lead to economic collapse, the goal is to change the system "so that human beings not be the victims of our ignorance or stupidity," O'Neill said.
O'Neill, in prepared remarks last night to an organization of major financial institutions, said: "Don't throw stones at our best efforts to fix this system -- throw ideas." Although he did not deliver the speech as prepared, he said it would be posted on the Treasury's Web site (www.treasury.gov).
While backing a sovereign bankruptcy mechanism, O'Neill said faster progress was being made on an approach that bankers prefer and the Treasury has long favored -- introducing collective-action clauses into more bond contracts. Those clauses allow a restructuring with supermajority approval of bondholders, rather than requiring unanimous consent.
On another issue, the IMF committee approved plans for the fund and the World Bank to become much more active in enhancing efforts to combat money laundering and track sources of terrorist finance. While the fund and the bank are increasing their roles, the Financial Action Task Force, an international group that fights money laundering, would refrain from adding to its list of nations that fail to cooperate in tracking dirty money.
© 2002 The Washington Post Company
|
|
