A Bankruptcy Plan for Nations?


As the second-in-command at the International Monetary Fund, Anne O. Krueger plays a key role in shaping the IMF's short-term strategy for combating financial crises and its long-term plans for reform of the global financial system. In an interview before the IMF's annual meeting, scheduled to take place in Washington, D.C., at the end of September, Krueger dismissed fears that the IMF could be caught short of capital because it had already loaned so much to countries whose ability to repay is in question (see BW, 9/30/02, "The IMF Mess").

However, she acknowledged that given the uncertainties in the world economy, the fund would prefer to have a larger capital base. Krueger, who is the IMF's first deputy managing director, also discussed her proposal for establishing an international bankruptcy system for developing countries -- the so-called sovereign-debt restructuring mechanism -- and suggested that it might eventually prove broader than now contemplated. Edited excerpts of her Sept. 17 interview with BusinessWeek Senior Writer Rich Miller follow:

Q: Do you expect to make any progress on your debt-restructuring proposal at the upcoming IMF meeting?

A: The expectation and the hope would be that [the IMF's member nations] will endorse further work on the proposal and ask us to move forward with all due speed. Whether it could be any stronger than that, I just don't know.

Q: Is the U.S. on board?

A: Certainly, based on what [the Administration] said, they're on board. I have no reason to doubt their truthfulness.

Q: How long will it take to set up the international bankruptcy system you've proposed?

A: I don't think we're looking to an exact time. There are still a lot of details to be worked out.

Q: But given that you've said the IMF's articles of agreement would need to be amended to put the plan in place, one would think it could take a few years.

A: You think correctly. [An amendment] has to be approved by 85% [of the member nations]. Even if we got the draft amendment to members by their spring meeting, which would be a Herculean feat, it would be unreasonable to expect [it to be] ratified within a year.

Q: In your discussions about the bankruptcy system, you've indicated that it would apply to the foreign debts of developing countries. But what about their domestic debts?

A: At the moment, we're proposing this only for [foreign] debt. But my present thinking is that we would want wording [in the amendment to the IMF's articles] that would permit broader coverage at a later stage if it were deemed desirable. That's my thinking -- this not an official fund position as of now.

Q: With big loans out to Brazil, Argentina, and Turkey, is there a risk that the IMF won't have enough money on hand to handle the next international crisis because it has already committed so much of its capital to countries that can't repay their debts?

A: I don't think that [debt repayment] is a big issue. The interests of a country over the medium term -- by which I mean a couple of years, no more -- is surely to stay in good standing with the international financial institutions [by repaying loans]. That's so valuable to them that even though I could imagine extreme circumstances in which a country might for a certain short period of time not fully live up to its obligations, I cannot imagine that happening for long.

Q: But with only about $68 billion left in uncommitted hard-currency reserves, aren't you worried that the IMF might be running a bit low on cash?

A: Obviously, we want to be prudent. We'd be more comfortable with a larger capital base. But some of the largest countries that might be borrowers are already borrowing heavily. So I don't think we foresee anything in the near future that makes us uncomfortable.


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