Multilateral Safety Nets for Financial Crises

Eduardo Fernandez-Arias

No 4668, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: There is an increasing need for a system of international lending of last resort (ILLR) to provide a safety net in the event of financial crises in vulnerable countries as financial globalization deepens and spreads. Multilateral progress to address liquidity and solvency crises has been patchy and inconsistent, with no clear distinction between the two; in particular, there is still no framework to address sovereign debt restructuring. This paper proposes an integrated system of specialized ILLR facilities to address problems of liquidity, adjustment, and debt restructuring in a focused but robust way as crises evolve and morph, structured in tiers to cater to countries’ capacity to prequalify for automatic support. It further proposes feasible legal reform to subject creditors to standstills and seniority dilution as in domestic bankruptcy in order to empower ILLR to facilitate orderly workouts in debt restructuring. Multilateral development banks would play important supporting roles.

Keywords: Safety nets; lender of last resort; liquidity crisis; solvency crisis; sovereign debt restructuring (search for similar items in EconPapers)
JEL-codes: F34 F53 F55 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Multilateral Safety Nets for Financial Crises (2010)
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