LONDON, June 20 (IFR) - International Monetary Fund
directors have tentatively approved plans to allow distressed
sovereigns seeking IMF assistance to re-profile debt maturities
without changing other contract terms.
The lending reform plan was hatched after the debacle in
Greece, which got 110bn in IMF money in May 2010, only to turn
around and launch a savage 206bn debt restructuring less than
two years later. Much of that initial package paid off
bondholders, while at the same time making taxpayers more
The Fund would prefer to see debt restructuring, if
required, done earlier to avoid such mistakes. The re-profiling,
to be carried out voluntarily with creditor consent, is seen as
an intermediate measure to reduce both the need for more
extensive IMF assistance and deeper restructuring.
When the plan was first aired a year ago, however, the
maturity extension of all debts by three to five years was an
automatic measure for all sovereigns tapping the Fund.
In the version put to the IMF's board, though, the extension
is no longer automatic.
"Most directors stressed that there should be no presumption
that a re-profiling of debt would be required simply because a
member seeks Fund support, and that staff would need to exercise
judgment in determining cases where a re-profiling would be
called for, taking account of members' specific circumstances,"
the IMF said in a statement.
There was opposition to the initial plan from certain
influential members, including the US, who wanted to maintain
more flexible market-based plans rather than proscriptive
measures that would take effect automatically. This flexibility
was also preferred by creditors.
"A few directors, noting the operational difficulty in
judging if both conditions for re-profiling have been met and
the risk that the re-profiling expectation could trigger market
volatility, preferred to maintain the current framework, which
they considered more pragmatic and flexible," the IMF said.
An IMF official said it wanted to reach a consensus among
both official sector and private sector parties, and would
consult further with market representatives.
"This is important, as we want to avoid unintended
consequences. We want to incorporate their views as much as we
can," the official said.
Many of the fund's directors also wanted the exemption,
which allowed the IMF to grant Greece such exceptional funds in
2010, to be dropped.
"This was a software patch to cover difficulties faced in
2010. Now we are writing software in a better way to make it
more resilient," said the official. "We are exploring
alternatives without compromising our principles."
A minority, however, said they wanted this systemic risk
category to be maintained.
"Some preferred to retain the systemic exemption, which in
their view is a pragmatic way to safeguard financial stability
in an increasingly integrated world and to avoid the perception
of lack of even-handedness," said the IMF statement.
The IMF will continue consultations before putting final
conclusions on re-profiling and related matters to its board. It
will also produce a related paper in the next few months on
adopting reforms to sovereign debt contracts, such as aggregated
collective action clauses and overhauled pari passu language,
that would ease future restructurings as well.
An IMF official said this would be more vital now that
Argentina had failed to persuade the US Supreme Court to
overturn a lower court ruling that it must pay holdout creditors
in full when it next pays exchange bondholders.
(Reporting by Christopher Spink; Editing by Marc Carnegie)