Anne Krueger, the International Monetary Fund's first deputy managing director, knows a becoming backdrop when she sees one. Three weeks after she advocated new measures to protect debtor nations from international creditors, Argentina collapsed into near chaos. It makes a fine Exhibit A for Krueger's arguments.
These arguments aren't new. Beyond the gates of Washington and the multilateral financial institutions, thoughtful economists have been asserting for years that debt-burdened nations deserve the sort of temporary bankruptcy protection afforded corporations and individuals. But to swing open the gates -- that simple act has already made much difference.
An idea that lived only in ivory towers and streets now sits on the IMF's polished mahogany tables. It's enough to make the heart swell with something peculiarly like optimism. (But let's not get carried away.) Like a chemist resolving a compound, Krueger has separated the arguments on this issue -- and they have come thick and fast since her late-November speech -- into two clear categories.
There are those concerned with ends and those concerned with means. Consider these following statements.
"There is a broad sense that something has to be done about the issue of resolving problems when countries can't pay their debts," Joseph Stiglitz, the Nobelist and former World Bank economist, said after the Krueger speech. "This is an area in which there was increasing international momentum, and I think it's a good thing something is being done about it."
For historical context, we can turn to Jeffrey Sachs, who heads Harvard University's Center for International Development.
The proposed framework "fills a gaping hole in the financial system that has been evident for decades, if not centuries," he told the Financial Times. "I have been advocating such a scheme for 15 years."
Now let's turn to the private sector.
"I haven't spoken to anyone outside the IMF who thinks this idea is anything less than ridiculous," one bond trader tells me. (No names this side of the ledger.)
An executive at an emerging-market hedge fund offers this: "The analogy with bankruptcy law is just plain stupid. You can't have a system in which the debtor nation's assets are not on the table. Neither will it work when the biggest creditors -- the IMF, the World Bank, the Paris Club -- don't come to the table themselves."
Ends and means. Either you're thinking about a more balanced global financial order, by which calamities such as Argentina's can be avoided, or you're thinking of all the reasons why such an order cannot be erected. Of course, those preoccupied with means have their own ends: They think the system as it is, with all its expensive messes and social unrest, serves them well. They are simply not stating this.
Everyone knows there are problems and shortcomings. Of the eight major financial crises of the past decade, Argentina's is the only one in which sovereign debt is the principal difficulty.
"To think new bankruptcy provisions for sovereigns will solve all our problems is simply wrong," says Michael Mussa, former chief of research at the IMF, now a senior fellow at the Institute for International Economics.
Then there is the politics. As Krueger acknowledged, "The political imponderable is whether our members are prepared to constrain the ability of their citizens to pursue foreign governments through their national courts as an investment in a more stable -- and therefore more prosperous -- world economy."
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