IMF Launches Discussion of Sovereign Debt Restructuring

IMF to study ways of improving debt restructuring process, outcomes

Current market-based approach may need to be updated

Future work to examine possible implications for IMF lending

In an interview with the IMF Survey, Bredenkamp noted that sovereign debt is back at the center of economic policy debate as a result of the global crisis, prompting the IMF to develop a new work program on the topic.

Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy Framework looks at the experience with restructurings in recent years and identifies issues that have emerged, Bredenkamp said. Serving as the starting point for future IMF work on the topic, the study also outlines the range of policy proposals that have been made to address these problems, he added.

In this interview, Bredenkamp discusses the new IMF study and why it is important to encourage a more efficient approach to sovereign debt restructuring.

IMF Survey : Why has the IMF decided to review its sovereign debt restructuring policies and practices?

The IMF has not looked at the topic of sovereign debt restructuring in a comprehensive way since 2005. A lot has happened since then, including the global financial crisis, so it was time to take stock. Greece executed the largest debt restructuring in history in February 2012. A number of other countries have recently launched restructurings, including Belize, Jamaica, St. Kitts and Nevis, and Grenada. There is also ongoing litigation between Argentina and its creditors, which could have major implications for how future sovereign debt restructurings are done.

The debate on debt restructuring is already going on actively outside the IMF in various international fora. We are joining in this discussion.

IMF Survey : What is the Fund’s current approach and framework for supporting sovereign debt restructuring?

To understand the Fund’s role with regard to debt restructuring, you have to go back to the IMF’s lending mandate. Our Articles of Agreement require that, when we lend to a country, we do so to help that country resolve its balance of payments problems within a timeframe that allows it to return to medium-term viability and repay the Fund. Because of this mandate, the IMF cannot lend in situations where debt is assessed to be unsustainable. As a result, the IMF often becomes, in effect, the trigger for a decision by a country to restructure. When a country has lost market access or has...