## Fund Staff Re-Examine the Case for Using Financial Incentives in Support of Debt Restructuring Operations

_IMF News, March 16, 2021_

## Source details

**Canonical URL:** [Fund Staff Re-Examine the Case for Using Financial Incentives in Support of Debt Restructuring Operations](https://www.imf.org/en/news/articles/2021/03/16/pr2170-fund-staff-re-examine-case-using-financial-incentives-support-debt-restructuring-operations)

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## Bibliographic details
- Published: March 16, 2021

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### Background
- Press Release No. 21/70; March 16, 2021.
- Publication notes a staff paper examining the economic case for Debt- and Debt-Service-Reduction Operations (DDSROs): cash payments (usually through market-based buybacks) or collateral offered as part of a debt restructuring offer.
- The paper analyzes the relevance of the Fund’s 1990s policy on such operations to the present, post-COVID, context.
- Under the Debt- and Debt-Service-Reduction (DDSR) policy, the Fund supported members’ DDSROs by earmarking a portion of Fund financing to assist such members in making debt buybacks and collateral purchases. This policy was discontinued in 2000, two years after its last use.

### Key findings
- Fund staff does not see the need for reviving the DDSR policy at this juncture.
- If a member wants to finance DDSROs in the context of a Fund supported program, it could do so using the general balance of payment support provided by the Fund, without requiring a dedicated policy for DDSROs.
- The paper identifies circumstances in which including cash or collateral in a debt exchange offer and/or buying back debt in the secondary market could contribute to resolving a member’s balance of payments problems.
- The circumstances under which Fund resources could be used to support DDSROs are narrow.
- The Fund has not received any request for such support at this time.
- While a systemic sovereign debt crisis is not in staff’s baseline scenario, it remains critical to thoroughly review the toolkit available to address a potential crisis.

### Policy implications and operational options
- Continue to rely on general balance of payment support within Fund-supported programs to finance DDSRO-like operations if members request such financing, rather than reinstating a dedicated DDSR policy.
- Maintain analysis of when cash or collateral included in debt exchange offers and secondary-market buybacks can materially aid balance of payments adjustment, recognizing that qualifying circumstances are narrow.
- Keep under review the Fund’s toolkit for sovereign debt crises, given that a systemic sovereign debt crisis is not in the baseline but remains a possible scenario.

### Communications and contacts
- IMF Communications Department, MEDIA RELATIONS; PRESS OFFICER: Maria Candia.
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org

*Source: Fund staff press release, March 16, 2021.*

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## References

- [IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19)
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- [Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [papers](https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/09/30/The-International-Architecture-for-Resolving-Sovereign-Debt-Involving-Private-Sector-49796)
- [blogs](https://blogs.imf.org/2020/10/01/reform-of-the-international-debt-architecture-is-urgently-needed/)
- [paper](https://www.imf.org/en/Publications/Policy-Papers/Issues/2021/03/16/Fund-Support-for-Debt-and-Debt-Service-Reduction-Operations-50266)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/03/16/pr2170-fund-staff-re-examine-case-using-financial-incentives-support-debt-restructuring-operations_