The International Financial Architecture: Old Issues and New Initiatives
International Finance, 2002, vol. 5, issue 1, 23-45
Reform of the international financial architecture has made progress but has not dealt decisively with the need to involve private sector creditors in resolving debt‐related crises. It has relied unduly on voluntary approaches combined with large‐scale official financing. A comprehensive approach requires the use of temporary standstills to protect debtors against litigation. These can help to resolve ‘liquidity’ crises as well as ‘solvency’ crises. Proposals by Krueger (2001, 2002) provide a way to resolve the problem of a sovereign debtor with an unsustainable debt burden but offer no solution to problems involving private sector debt or to liquidity crises. They would also require an amendment to the Articles of Agreement of the International Monetary Fund, which could prove difficult. This paper proposes a less radical approach – adding rollover clauses and collective‐action clauses to sovereign and private debt contracts, backed by strict limits on IMF financing. It resembles, but goes further than, the contractual approach favoured by the US Treasury.
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