Seeking the Common Ground

May 1, 2002

Bondholders think the International Monetary Fund and western governments are forcing them to support a sovereign restructuring process that would violate their interests and those of the international bond market as a whole. Hans Humes propeses a solution that would protect the interests of both debtor and creditor in future sovereign restructurings.

The Argentine crisis has highlighted the split between private and public sector on how to manage sovereign defaults. Since November 2001, when Anne Krueger of the International Monetary Fund made her initial speech on international bankruptcy to the National Economists' Club, there has been a barrage of proposed reforms to the current ad hoc system of external debt restructurings. The focus of many of these proposals has been to ensure that "rogue creditors," or minority bondholders who might not agree with the majority's decision, do not derail future sovereign restructurings. Bondholders, on the other hand, feel some animosity towards the international financial institutions after being forced to suffer reductions in principal in Ecuador and Russia while public sector creditors took none. The experience in Argentina so far has not been any better. Not surprisingly, bondholders have no confidence that the IMF and other multilaterals will come up with a...

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