>In commercial terms, as the article from the Stop IMF list below suggests,
>it would make it even more difficult for struggling countries to raise the
>capital they need.
There is just no evidence for this proposition. First up, people like the
IIF always like to use phrases like "struggling countries". We're actually
talking about emerging market middle-income countries here, not
highly-indebted poor countries. They're struggling to industrialise, not
struggling for food. Genuinely struggling countries, the ones who really
need capital, have no private sector creditors at all and so would be
utterly unaffected by the proposal.
Second, there is no evidence that the market for sovereign lending takes
bankruptcy arrangements into account when pricing debt. Thailand, which has
never defaulted, ever, pays spreads above Brazil and Mexico. The worst that
might happen would be a few basis points tacked onto spreads on sovereign
debt.
>>The I.M.F. proposal is modeled on Britain's bankruptcy laws. A nation
could
>apply to the fund for the right to declare bankruptcy. If granted, that
>nation would negotiate a settlement with its creditors, and a majority of
>them could decide terms for the whole. The fund would also allow nations to
>impose temporary foreign-exchange controls to prevent a rapid outflow of
>private funds.
It's not actually modelled on UK bankruptcy law, and there is no general
presumption under UK insolvency law that majority voting from creditors can
decide terms. It's modelled on proposals made by the G10 in 1995, which I
know about because I helped to draft them in my former life. The majority
voting and anti-problem creditor provisions are taken from the Eurobond
market.
I would massively caution against anyone assuming that there is any
political will whatsoever (as opposed to kite-flying and speechmaking)
behind the initiative for a sovereign bankruptcy code. The IMF has a long
history of making airy proposals without looking into the legal and
political complexities involved, and a considerable vested interest in
discovering a role for itself as a "sovereign bankruptcy court" now that its
current policy lending role is coming under fire.
Incidentally, if the UK were ever to declare itself to be defaulting on its
international debt, then holders of its Eurobonds (not the domestic gilts)
would find that they were involved in exactly this sort of a restructuring.
That's because the UK has clauses in the documentation of its Eurobonds
(which IIRC, are filed under New York law) by which the creditors agree to
majority voting in the event of default. The UK put these clauses into the
Eurobonds to try to encourage every government to have them. But markets
will accept this sort of thing from a Aaa borrower like HMG -- they won't
accept it from Argentina or Ecuador unless someone forces them to.
>
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