## IMF Survey : IMF Launches Discussion of Sovereign Debt Restructuring

_IMF News, May 23, 2013_

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## Bibliographic details
- Published: May 23, 2013

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### Global work agenda
- IMF developing a new work program on sovereign debt restructuring in response to fallout from the global crisis and recent country cases.
- Study: "Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy Framework" serves as the starting point for future IMF work and outlines a range of policy proposals.
- Study scope includes recent restructurings and issues that have emerged; future work will expand case-history analysis and policy options.

### IMF’s current framework and role
- IMF lending mandate: lend to help countries resolve balance of payments problems within a timeframe that allows return to medium-term viability and repayment to the Fund.
- The IMF cannot lend when debt is assessed to be unsustainable; thus IMF financing often becomes the trigger for a country to restructure.
- Debt sustainability analysis by the IMF "effectively determines the parameters of that restructuring by indicating how much debt relief is needed."
- The IMF does not micromanage restructurings but plays an important role when restructurings occur in the context of IMF-supported programs requiring creditor support and restoration of debt sustainability.

### Main findings from the recent review
- Reviewed nine new restructuring cases that have taken place since the last comprehensive review in 2005.
- Finding 1: Restructurings often come "too late and are too limited to really restore debt sustainability," which can be very costly:
  - Debt overhang hinders market access and growth, damages confidence, and deters investment.
  - If debt is unsustainable and obvious to markets, private investors may exit while official sector—including the IMF—provides financing, resulting in official money going in while private creditors’ money goes out.
  - This dynamic can be inconsistent with IMF lending principles by failing to solve the underlying problem.
- Finding 2: The current contractual, market-based approach (increasingly relying on collective action clauses in debt contracts) "may be becoming less potent in overcoming collective action problems."
  - The contractual approach has been working reasonably well, but recent cases show signs of reduced effectiveness in preventing holdouts.

### IMF role going forward and policy options
- The IMF will remain centrally involved because of its "lender of last resort" role.
- Key policy tensions:
  - Need flexibility in sovereign debt restructuring cases versus avoiding policies that encourage undue procrastination.
  - Need ability to provide large amounts of financing in truly critical situations.
  - Difficulty of setting a rigid framework of rules; consideration of better defined criteria to guide IMF discretion.
- Approaches to collective action problems:
  - A statutory approach (e.g., sovereign debt restructuring mechanism discussed in 2003) is a possible solution, but "there is not sufficient support in the international community for this type of approach."
  - Therefore, near-term focus will be on strengthening the contractual approach.

### Next steps, sequencing, and timeline
- Executive Board agreed staff should do further work, including:
  - More extensive study of case histories of both countries that restructured and those that resolved problems without restructuring.
  - A two-stage work program:
    - Stage 1: Issues related to timeliness and adequacy of debt restructurings and collective action problems.
    - Stage 2: Framework for official sector involvement and the lending-into-arrears policy.
  - Follow-up papers with further analysis and policy options for each strand of work, based on objective assessments and broader recent country examples.
- Anticipated timeline: "We envisage that it could be a year or so from now before the IMF’s Board is ready to consider possible modifications to Fund policies in this area."

*Source: IMF Survey : IMF Launches Discussion of Sovereign Debt Restructuring, May 23, 2013.*

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## Content in this bundle

- [041811pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2011/_041811pdf.pdf){rel="external" type="application/pdf"}
- [042613pdf (PDF)](/-/media/websites/imf/imported/external/np/pp/eng/2013/_042613pdf.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Policy](https://www.imf.org/en/news/search)
- [Press release](http://www.imf.org/external/np/sec/pn/2013/pn1361.htm)
- [Debt sustainability guidance](http://www.imf.org/external/pubs/ft/dsa/mac.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol052313a_