Treasury Secretary Paul H. O'Neill came into office suggesting that an international bankruptcy system of sorts be set up for developing nations. It would offer an alternative to the sloppy bailouts of the late '90s when Asia, Russia, and Latin America had serious problems. O'Neill wanted emerging-market bond and loan contracts to contain "collective-action clauses" that would specify ways to sort out debt claims once a country is declared insolvent. Similar to Chapter 11 corporate workouts in the U.S., this debt workout would allow countries to keep functioning while creditors reschedule debt repayments. The IMF would develop a longer-range plan for reform and provide funds. It was a good idea.
But rewriting a multitude of existing bond and loan contracts is proving slow. The process was also delayed by the need to change national laws and create a new institution to mediate differences among creditors and governments. Washington has slowed its push for reform and now appears to be playing to politics. Turkey and Brazil have received huge bailouts. Argentina received one bailout package, but not a second. Confusion reigns. As the annual IMF/World Bank meeting approaches, it's time to start thinking again about reform--and consistency in policy as well.