The International Monetary Fund (IMF) on Tuesday unveiled its first detailed plan for creating a global bankruptcy system for nations unable to meet their debt obligations.
Anne Krueger, a top IMF executive who first proposed the creation of the system in November 2001, said the document will "lay the basis" for a proposal later this year to the committee of finance ministers that oversees the IMF's policies.
Three months ago, that committee asked the IMF to develop a "concrete" proposal for an international bankruptcy system, which the IMF calls the Sovereign Debt Restructuring Mechanism.
For decades, international economic policy makers have been troubled by the periodic bouts of regional or global financial instability triggered by emerging-market countries that accumulated more foreign debt than they could repay.
But since 2001, when Argentina defaulted on its US$141 billion public debt, the IMF and the US government have advanced two competing ideas for resolving such crises: the IMF favors a global bankruptcy system; the US government prefers a less ambitious system under which new bond contracts would contain clauses spelling out how sovereign debt may be restructured. Private creditors say they prefer the contractual approach.
Under the IMF plan, a government that deemed its debts to be "unsustainable" could unilaterally initiate the bankruptcy process by notifying a committee called the Sovereign Debt Dispute Resolution Forum, which would be independent of the IMF.
Once that occurred, the government would be obligated to provide "all information regarding its indebtedness ... to its creditors." Over the next 30 days, the information would be verified and disputes adjudicated by the dispute-resolution forum.
After that, the borrower would have to reach a restructuring agreement with creditors who account for more than 75 percent of the outstanding claims.
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