Debt restructuring in review if Argentina defaults: IMF

Tags: News
The mechanisms allowing a country to restructure its sovereign debt should be "reviewed" if Argentina defaults, IMF chief Christine Lagarde has said.

Under a US court order, Argentina has to pay certain hedge funds demanding full payment on defaulted bonds till this midnight or risk being declared in default.

If that happens, "the debt restructuring principles and the efficiency" of collective-action clauses "will have to be reviewed," said Lagarde, managing director of the International Monetary Fund, at a news conference in Washington yesterday.

Collective-action clauses - including when a government issues bonds - traditionally allow a majority of creditors to agree to a debt restructuring when the country is facing a crisis.

Lagarde added that the Fund was monitoring the situation and analysing the potential consequences of a default.

Argentina used collective-action clauses to deal with its 2001 default on close to $100 billion in debt, which plunged the country into an economic crisis it is still battling to overcome.

Argentina persuaded 92% of its creditors to accept writeoffs of up to 70%.

But under the US judge's ruling, it cannot pay its other creditors without also paying hedge funds which did not agree to the debt restructuring.

Argentina is due to make a $539 million payment on the restructured bonds today.

If Argentina pays the so-called "holdout" hedge funds 100% of the $1.3 billion it owes them, it could be forced to pay all remaining creditors in full, as well, under the restructuring deal.

Some analysts say the US judge's ruling could encourage investors to hold out in other restructurings of sovereign debt, making it more difficult for the IMF and other official lenders to help stabilize countries whose finances have collapsed.

The IMF proposed an international debt restructuring mechanism in 2003 but the plan was abandoned under pressure from the United States, the institution's largest stakeholder, and the major emerging-market economies.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Sanskrit does not compare with German in the job market

    While there can be no argument that the importance of Sanskrit as an all-India language needs to be emphasised, particularly for the young generation

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

M S Swaminathan

Public good research in agriculture

Public good research in agriculture is designed to promote risk ...

Zehra Naqvi

To hell and back

Here is a book that makes you wish there were ...

Bubbles Sabharwal

When your real & reel life heroes are the same

ALL the world’s a stage and we all are merely ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture