Krueger welcomes IMFC green light to continue developing sovereign debt proposal Krueger stresses Doha Round

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Page 145

On September 1, 2001, Anne Krueger took up the reins as the IMF's First Deputy Managing Director. She brought with her a wealth of experience from the public and private sectors, including long stints in academia-most recently as an economics professor at Stanford University-and, from 1982 to 1986, as the World Bank's Vice President for Economics and Research. She is a Distinguished Fellow and past President of the American Economic Association.

IMF SURVEY: One closely watched item at our spring meetings was what would be decided on the IMF's proposal for a sovereign debt restructuring mechanism (SDRM) to help better resolve financial crises. Did the International Monetary and Financial Committee give the go-ahead for your proposal?

KRUEGER: Certainly it was a go-ahead for the IMF's proposal. As you know,Page 146 we did not, and do not, have every last detail of the proposed mechanism worked out. So, at each stage, we've asked our members whether we should keep developing it. And the committee certainly gave us a clear go-ahead for that.

At the same time, the international community is also keen to make progress on a complementary approach-namely, more ambitious use of collectiveaction clauses. Obviously, if that can be put into effect more quickly, it would help.We think, however, that the SDRM could do a number of things that these clauses would not achieve. So we are following a twin-track approach and working on both.

IMF SURVEY: How quickly could the collective-action clauses take effect?

KRUEGER: Anyone can put a clause in any bond issue anytime. But there are important jurisdictions in which there is no clear statutory basis that allows for the rights of a minority of creditors to be modified without their consent.And there are also jurisdictions in which a contract cannot be retroactively altered, which is a big problem. One possibility would be to have a country without collective-action clauses in its outstanding bonds offer to exchange them for new bonds that include them. If you did this at slightly more favorable terms, it could give people an incentive to switch over.

IMF SURVEY: In a recent interview with the IMF Survey, Professor Rudiger Dornbusch commented that he was surprised to see such a proposal coming from you. He thought you would have shared his worry about taking the job away from capital markets and giving it to some really bad institutions.Where does this proposal come from?

KRUEGER: Several people have said to me that they thought collective-action clauses were market-based, but that the SDRM was not. That has surprised me.

I would have thought that anybody looking at the way modern market economies operate would see a rule of law as market-based.We have domestic bankruptcy laws, which are an indispensable part of a well-functioning market system. I see no reason why a similar approach would be any less market-based internationally than it is in a domestic context. But, some have argued for...

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