The IMF’s Lending Framework and Sovereign Debt Restructuring

2014

The IMF has struggled for decades to develop a set of lending practices that enable sovereign borrowers to resolve serious debt problems and restore economic growth, but also respect the right of private financial markets to enter into and enforce contractual obligations. The challenge has always been to operate under a well-defined set of principles while dealing with each situation in a way that takes account of relevant circumstances. Recently, the international financial crisis that began in 2008 and the subsequent European sovereign debt crisis have raised this challenge to new heights. In providing €30 billion to Greece — the largest financial package ever granted to a single country — the IMF invoked greater discretion in its lending decisions to counteract potential “systemic” crises. By doing so, it entered a program without a restructuring agreement. KEY POINTS

This paper gives an overview of the role of the IMF in the European debt crisis. It describes the rescue packages and the involvement of the IMF. The main part discusses the pros and cons of the participation of the IMF in elaborating and monitoring the economic adjustment programs for the countries in crisis. A last section concludes and tries to answer the question whether the Troika model might be suited to solve future international crises. --

In recent years the IMF has made efforts to build an improved "crisis prevention and resolution framework" that minimizes the size and frequency of bailouts, largely out of a concern with the possible moral hazard consequences of its interventions. This framework, however, which includes an emphasis on greater private sector involvement, the encouragement of the use of collective action clauses and a more effective enforcement of access limits to IMF lending has not generated an observable change in practice. The institution may be trying to achieve an almost impossible objective: imposing more stringent criteria to constrain its intervention capacity without recognizing that such an approach is ultimately inconsistent with the IMF's intrinsically political nature. This is clearly evidenced in the cases of countries that have to restructure their debts. The failure of the SDRM project reflected, among other factors, the prevailing view in the United States administration that market forces should be relied on to find an "solution" in these situations almost on their own. But this has in practice meant that the IMF relinquishes its potential contribution to improving the result of sovereign debt restructurings. In fact, the IMF has frequently exerted pressure on the debtor and its views have often been biased in favour of the creditors' interests. In particular, its lending into arrears policy (LIA) has been used as a means to induce debtor governments to "accommodate" to these interests. But by providing financing to the debtor through its LIA policy the Fund could potentially play a positive role in reducing the gap between the creditors' "reservation price" and the country's repayment capacity while, at the same time, making sure that the debt burden becomes sustainable. In this way, both debtor countries and its creditors would be better off. However, the Fund should not support "market-friendly" sovereign debt restructurings that are incompatible with sustainable debt paths and may represent a greater risk for its resources than more "coercive" alternatives. Indeed, the paradox is that "investor friendly" debt restructurings represent quite the opposite of a market outcome: they require active and often massive IMF interventions and the level of the resulting haircut is sub-optimally low.

2006

In recent years the IMF has made efforts to build an improved "crisis prevention and resolution framework" that minimizes the size and frequency of bailouts, largely out of a concern with the possible moral hazard consequences of its interventions. This framework, however, which includes an emphasis on greater private sector involvement, the encouragement of the use of collective action clauses and a more effective enforcement of access limits to IMF lending has not generated an observable change in practice. The institution may be trying to achieve an almost impossible objective: imposing more stringent criteria to constrain its intervention capacity without recognizing that such an approach is ultimately inconsistent with the IMF's intrinsically political nature. This is clearly evidenced in the cases of countries that have to restructure their debts. The failure of the SDRM project reflected, among other factors, the prevailing view in the United States administration that market forces should be relied on to find an "solution" in these situations almost on their own. But this has in practice meant that the IMF relinquishes its potential contribution to improving the result of sovereign debt restructurings. In fact, the IMF has frequently exerted pressure on the debtor and its views have often been biased in favour of the creditors' interests. In particular, its lending into arrears policy (LIA) has been used as a means to induce debtor governments to "accommodate" to these interests. But by providing financing to the debtor through its LIA policy the Fund could potentially play a positive role in reducing the gap between the creditors' "reservation price" and the country's repayment capacity while, at the same time, making sure that the debt burden becomes sustainable. In this way, both debtor countries and its creditors would be better off. However, the Fund should not support "market-friendly" sovereign debt restructurings that are incompatible with sustainable debt paths and may represent a greater risk for its resources than more "coercive" alternatives. Indeed, the paradox is that "investor friendly" debt restructurings represent quite the opposite of a market outcome: they require active and often massive IMF interventions and the level of the resulting haircut is sub-optimally low.

SSRN Electronic Journal, 2013

The Role of the IMF in Future Sovereisin Debt Restructurinas Report of the Annenberg House Expert Group A one-day meeting of international finance and insolvency experts was held on November 2, 2013 at the Annenberg House in Santa Monica, California. The meeting was co-hosted by the University of Southern California Gould School of Law and the Annenberg Retreat at Sunnylands. The participants at the meeting are listed in Attachment A to this Report. The topic of the meeting was "The Role of the IMF in Future Sovereign Debt Restructurings." An agenda (copy attached as Attachment B) was circulated to the participants prior to the meeting. The goal of the meeting was to solicit the views of a diverse group of experts on the practical implications of the IMF 's April 26, 2013 paper captioned "Sovereign Debt Restructuring-Recent Developments and Implications for the Fund's Legal and Policy Framework" (the "April 26 Paper"). The April 26 Paper may signal a major shift in IMF policies in the area of sovereign debt workouts. A number of the proposals in the April 26 Paper are likely to be controversial and the IMF Executive Board has instructed the Fund staff to prepare more detailed analyses of these issues. The University of Southern California Gould School of Law invited the participants in the Expert Group to provide an independent assessment of the desirability and feasibility of some of the key recormmendations in the April 26 Paper. * *Participants provided their views strictly in their personal capacities and not as representatives of their respective institutions. * * * * 9:5 amWelcomingz remarks 9:30-10:50 am Too Little and Too Late Has the time come to formalize the Fund's Preferred Creditor Status ("Em"')? If so, in what way and with what legal consequences?

IMF Working Papers, 2005

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

IMF Working Papers, 2008

We present a framework that clari…es the …nancial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution e¤orts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention e¤orts-"ex ante" conditionality.

2020

Šeima ir mokykla-du pagrindiniai sėkmingo jauno žmogaus augimo ir puoselėjimo ramsčiai. Išeivijoje esantiems jie yra dar svarbesni norint, kad mūsų didžiausiam nacionaliniam turtui-jaunam žmogui-būtų įskiepyti meilė ir pagarba protėvių šaliai, tradicijoms, lietuvių kalbai, kultūrai ir vertybėms. Tai nėra lengva ir gyvenant Lietuvoje, o dar sunkiau, išvykus gyventi svetur, nes nebelieka palaikiančios kalbinės, kultūrinės, pozityviosios socializacijos aplinkos. Todėl šeimos pastangų ne visada užtenka, reikia ir Lietuvos valstybės, atsakingų institucijų pastangų ir paramos. Džiaugiamės ir didžiuojamės, kai emigracijoje gyvenantys lietuviai, grįžę į tėvų gimtinę bendrauja gražia lietuvių kalba, kuria savo ateities planus, susijusius su Lietuva. Tačiau dauguma mūsų, palaikydami glaudžius ryšius su savo artimaisiais, gyvenančiais kitose pasaulio šalyse, žinome, kiek papildomų pastangų, laiko, lėšų ir rūpesčio tenka investuoti visiems šeimos nariams, o dažniausiai mamai kaip ištikimiausiai kalbos, kultūros ir vertybių aukuro kurstytojai į jaunųjų lietuvaičių ugdymą. Džiaugiamės, kad LR švietimo įstatymo Nr. I-1489 papildymo 31 1 straipsnyje 7 atsiras platesnės galimybės ugdyti vaikus šeimoje legaliai, aišku bendradarbiaujant su ugdymo institucijomis. Šio įstatymo papildymo jau seniai laukia brandžios ir kūrybingos šeimos, auginančios ir norinčios ugdyti savo vaikus šeimoje tiek Lietuvoje, tiek už jos ribų. Mokymasis šeimoje yra ne pirmus metus gyvuojanti praktika daugelyje šalių: Estijoje, Latvijoje, Didžiojoje Britanijoje, Norvegijoje, Suomijoje, JAV ir kitose. Daugelis tėvų geba kvalifikuotai perteikti 7 Lietuvos Respublikos Vyriausybės nutarimas "Dėl Lietuvos Respublikos švietimo įstatymo Nr. I-1489 papildymo 31 1 straipsniu". Įstatymo projekto NR. XIIIP-3329. Prieiga per internetą: https://e-seimas. lrs.lt/portal/legalAct/lt/TAP/da909350891411e98a8298567570d639?positionInSearchResults=1&sear-chModelUUID=93af5809-f625-42e8-8d69-25777549c884.