The Fund’s Lending Framework and Sovereign Debt - Annexes PDF Download

Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498343333
Category : Business & Economics
Languages : en
Pages : 112

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Author: International Monetary Fund. Legal Dept.
Publisher: International Monetary Fund
ISBN: 149834335X
Category : Business & Economics
Languages : en
Pages : 43

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Book Description
As a follow-up to the Executive Board's May 2013 discussion, this paper considers a possible direction for reform of the Fund's lending framework in the context of sovereign debt vulnerabilities. The primary focus of this paper relates to the Fund's exceptional access framework, since it is in this context that the Fund will most likely have to make the difficult judgment as to whether the member's problems can be resolved with or without a debt restructuring. The objective of the preliminary approaches set forth in this paper is to reduce the costs of crisis resolution for both creditors and debtors—relative to the alternatives—thereby benefitting the overall system. These ideas are market-based and their eventual implementation would require meaningful consultation with creditors.

Author:
Publisher: INTERNATIONAL MONETARY FUND
ISBN: 9781498344739
Category : Business & Economics
Languages : en
Pages : 99

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Book Description
In discussing the June 2014 paper, Executive Directors broadly supported staff’s proposal to introduce more flexibility into the Fund’s exceptional access framework to reduce unnecessary costs for the member, its creditors, and the overall system. Directors’ views varied on staff’s proposal to eliminate the systemic exemption introduced in 2010. Many Directors favored removing the exemption but some others preferred to retain it and requested staff to consult further with relevant stakeholders on possible approaches to managing contagion. This paper offers specific proposals on how the Fund’s policy framework could be changed, presents staff’s analysis on the specific issue of managing contagion, and addresses some implementation issues. No Board decision is proposed at this stage. The paper is consistent with the Executive Board’s May 2013 endorsement of a work program focused on strengthening market-based approaches to resolving sovereign debt crises.

Author: International Monetary Fund. Asia and Pacific Dept
Publisher: International Monetary Fund
ISBN: 1498341918
Category : Business & Economics
Languages : en
Pages : 50

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Book Description
his paper reviews the recent application of the Fund’s policies and practices on sovereign debt restructuring. Specifically, the paper: • recaps in a holistic manner the various policies and practices that underpin the Fund's legal and policy framework for sovereign debt restructuring, including on debt sustainability, market access, financing assurances, arrears, private sector involvement (PSI), official sector involvement (OSI), and the use of legal instruments; • reviews how this framework has been applied in the context of Fund-supported programs and highlights the issues that have emerged in light of recent experience with debt restructuring; and • describes recent initiatives in various fora aimed at promoting orderly sovereign debt restructuring, highlighting differences with the Fund’s existing framework. Based on this stocktaking, the paper identifies issues that could be considered in further depth in follow-up work by staff to assess whether the Fund’s framework for debt restructuring should be adapted: • first, debt restructurings have often been too little and too late, thus failing to re-establish debt sustainability and market access in a durable way. Overcoming these problems likely requires action on several fronts, including (i) increased rigor and transparency of debt sustainability and market access assessments, (ii) exploring ways to prevent the use of Fund resources to simply bail out private creditors, and (iii) measures to alleviate the costs associated with restructurings; • second, while creditor participation has been adequate in recent restructurings, the current contractual, market-based approach to debt restructuring is becoming less potent in overcoming collective action problems, especially in pre-default cases. In response, consideration could be given to making the contractual framework more effective, including through the introduction of more robust aggregation clauses into international sovereign bonds bearing in mind the inter-creditor equity issues that such an approach may raise. The Fund may also consider ways to condition use of its financing more tightly to the resolution of collective action problems; • third, the growing role and changing composition of official lending call for a clearer framework for official sector involvement, especially with regard to non-Paris Club creditors, for which the modality for securing program financing commitments could be tightened; and • fourth, although the collaborative, good-faith approach to resolving external private arrears embedded in the lending into arrears (LIA) policy remains the most promising way to regain market access post-default, a review of the effectiveness of the LIA policy is in order in light of recent experience and the increased complexity of the creditor base. Consideration could also be given to extending the LIA policy to official arrears.

Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498344097
Category : Business & Economics
Languages : en
Pages : 35

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Background: As a follow-up to the May 2013 Executive Board’s discussion of the paper on Sovereign Debt Restructuring: Recent Developments and Implications for the Fund’s Legal and Policy Framework (hereinafter, the “2013 Paper“), this paper proposes a reform to the Fund’s policy on non-toleration of arrears owed to official bilateral creditors (“NTP”) with a view to addressing the major issues related to official sector involvement (OSI) discussed in the 2013 Paper. Unlike the Fund’s lending-into-arrears (“LIA”) policy for private creditors, the NTP prevents Fund lending to countries if they owe unresolved arrears to official bilateral creditors, unless the arrears are covered by a Paris Club agreement or the creditor consents to the Fund providing financing. Nature of the problem: As staff foreshadowed in the 2013 Paper, several aspects of the current NTP present challenges in a changing and increasingly diverse landscape for official bilateral finance. For example, the NTP’s reliance on the practices and conventions of the Paris Club creates challenges in an environment where a growing number of creditors are non-Paris Club members. In particular, the NTP’s dependence on the Paris Club’s comparability of treatment principle to deem away arrears to non-Paris Club bilateral creditors is difficult to justify in circumstances where a Paris Club agreement is not sufficiently representative and the bulk of official bilateral claims are held by non-Paris Club creditors. Further, where there is no Paris Club agreement, the current policy can give individual official bilateral creditors a veto over Fund lending decisions, drawing no distinction between creditors that are contributing to the financing requirements of the program and those that are not, thus leaving the system vulnerable to holdouts. Proposed modification: Staff’s proposal envisages a two-step process: in the first step, all creditors would be encouraged to reach a consensus. While the Paris Club is currently a well-established forum for OSI, the Fund would also recognize agreements among creditors reached in other representative fora, should such fora emerge. If an agreement is reached through the Paris Club and the creditor group so formed represents a significant portion of total official bilateral claims, the Fund would rely on its current practices and deem away arrears to nonparticipating creditors based on the Club’s comparability of treatment principle. Only when an agreement cannot be reached (i) with a representative group of creditors in the Paris Club, or (ii) with each creditor in an alternative grouping or bilaterally, would the Fund consider lending into arrears owed to official bilateral creditors in carefully circumscribed circumstances. The decision to lend in these situations would be subject to a need for prompt Fund assistance, an assessment that the debtor is making good faith efforts to reach an agreement and that the absence of a debt restructuring is due to the unwillingness of the creditor to reach an agreement consistent with the parameters of the Fund-supported program, and a judgment on whether the decision to lend could negatively affect the Fund’s ability to mobilize official financing packages in the future. Likely impact: Staff’s proposal will strengthen incentives for collective action among official bilateral creditors in situations where OSI is necessary. The two-step process encourages individual official bilateral creditors to be part of a multilateral agreement, thus reducing the risk that the Fund would be prevented from assisting a member in need because certain official bilateral creditors are seeking more favorable treatment of their claims at the expense of other contributing creditors. Importantly, the policy will continue to protect official bilateral creditors, as any decision to lend into arrears will be subject to the debtor’s good faith efforts, will be applied in a way that preserves the Fund’s ability to mobilize official financing packages in future, and be subject to the Board’s approval. Next steps: If the Board supports the proposed modification, the new policy will apply immediately to all future Fund disbursements (including under existing arrangements) with respect to existing and future arrears owed to official bilateral creditors.

Author: Anne O. Krueger
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 54

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Book Description
In recent years there has been extensive discussion inside and outside the IMF on the need to develop a new approach to sovereign debt restructuring. Exploring ways to improve the sovereign debt restructuring process is a key part of the international community’s efforts to strengthen the architecture of the global financial system. This pamphlet by IMF First Deputy Managing Director Anne O.Krueger draws together the latest IMF thinking on the controversial issue in a single publication.

Author: International Monetary Fund. Strategy, Policy, & Review Department
Publisher: International Monetary Fund
ISBN: 1513568329
Category : Business & Economics
Languages : en
Pages : 124

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Book Description
A careful review has revealed significant scope to modernize and better align the MAC DSA with its objectives and the IMF’s lending framework. This note proposes replacing the current framework with a new methodology based on risk assessments at three different horizons. Extensive testing has shown that the proposed framework has much better predictive accuracy than the current one. In addition to predicting sovereign stress, the framework can be used to derive statements about debt stabilization under current policies and about debt sustainability.

Author: Mr.Udaibir S. Das
Publisher: International Monetary Fund
ISBN: 1475505531
Category : Business & Economics
Languages : en
Pages : 128

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Book Description
This paper provides a comprehensive survey of pertinent issues on sovereign debt restructurings, based on a newly constructed database. This is the first complete dataset of sovereign restructuring cases, covering the six decades from 1950–2010; it includes 186 debt exchanges with foreign banks and bondholders, and 447 bilateral debt agreements with the Paris Club. We present new stylized facts on the outcome and process of debt restructurings, including on the size of haircuts, creditor participation, and legal aspects. In addition, the paper summarizes the relevant empirical literature, analyzes recent restructuring episodes, and discusses ongoing debates on crisis resolution mechanisms, credit default swaps, and the role of collective action clauses.

Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1513530704
Category : Business & Economics
Languages : en
Pages : 16

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In a response to a request from the G20 IFA Working Group, this note provides a framework for public lenders and borrowers to assess collateralized financing practices from a development perspective. The work of the IMF and World Bank suggests that the availability of collateralized financing can be beneficial to a developing country borrower under a range of circumstances, but also points to pitfalls.

Author: Mr. Tamon Asonuma
Publisher: International Monetary Fund
ISBN: 1484350278
Category : Business & Economics
Languages : en
Pages : 28

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Book Description
This paper examines the causes, processes, and outcomes of the two Belize sovereign debt restructurings in 2006–07 and in 2012–13 that occurred outside of an IMF-supported program. It finds that the motivation for the two debt restructurings differed, as the former was driven by external liquidity concerns while the latter was motivated by a substantial increase in the coupon rates and future fiscal solvency concerns. Despite differential treatment between residents and non-residents, both 2006–07 and 2012–13 debt exchanges were executed through collaborative engagement, due in part to the existence of a broad-based creditor committee and the authorities’ effective communication strategy. However, while providing temporary liquidity relief, neither of the debt restructurings properly addressed long-term debt sustainability concerns. Going forward, the success of the 2012–13 debt restructuring will still depend on the country’s ability to strengthen fiscal efforts and public debt management framework.