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In recent years there has been extensive discussion inside and outside the IMF on the need to develop a new approach to sovereign debt restructuring. Exploring ways to improve the sovereign debt restructuring process is a key part of the international community’s efforts to strengthen the architecture of the global financial system. This pamphlet by IMF First Deputy Managing Director Anne O.Krueger draws together the latest IMF thinking on the controversial issue in a single publication.

Anne O. Krueger

Anne Krueger is the First Deputy Managing Director of the International Monetary Fund, a post she assumed on September 1, 2001.

Prior to taking up her position at the IMF, Ms. Krueger was the Herald L. and Caroline L. Ritch Professor in Humanities and Sciences in the Department of Economics at Stanford University. She was also the Director of Stanford’s Center for Research on Economic Development and Policy Reform and a Senior Fellow of the Hoover Institution. Prior to joining the Stanford faculty, she taught at the University of Minnesota and Duke University and, from 1982 to 1986, was the World Bank’s Vice President for Economics and Research. She received her undergraduate degree from Oberlin College and her Ph.D. in Economics from the University of Wisconsin.

Ms. Krueger is a Distinguished Fellow and past President of the American Economic Association, a member of the National Academy of Sciences, and a Research Associate of the National Bureau of Economic Research.


Specifically, most syndicated loans contained sharing clauses that provided strong incentives for negotiated settlements rather than resort to litigation.


Upon an event of default, most international sovereign bonds provide that an acceleration (where the full amount owing becomes due and payable) may be blocked by a defined percentage of bondholders. In addition, international sovereign bonds issued under trust deeds (traditionally governed by English law) give the trustee the primary authority to initiate legal action, and the trustee is only permitted to do so if such action is supported by a threshold percentage of bondholders.


In contrast, if the mechanism relies upon a statutory basis, a transitional problem is less likely to arise. Most countries recognize that the establishment of a new legislative framework that is specifically directed at the suspension of creditor claims, such as insolvency laws, can apply to existing indebtedness. If the approach discussed in the previous section is followed, an SDRM would suspend the enforcement of the original claims by a minority of creditors (either prior to or after an agreement) in circumstances where the debtor and a qualified majority of creditors have agreed to such a suspension.


In many jurisdictions, an international treaty, once effective, automatically supercedes domestic legislation. In other jurisdictions, however, the domestic legislation must be modified to incorporate the terms of the treaty.


Overriding the recognition of such judgments could be achieved by uniform recourse to the “public policy” exception to these general rules.


As interpreted by the courts of some IMF members, Article VIII, Section 2(b) of the IMF’s Articles may be invoked to stay creditor enforcement against debtors unable to service their external payments because of exchange controls that are consistent with the IMF’s Articles.