Defaulters on sovereign debt will be able to receive funds from the IMF under certain conditions

Defaulters on sovereign debt will be able to receive funds from the IMF under certain conditions


WASHINGTON, December 10. /Corr. Andrew Shitov/. Countries with overdue sovereign debt will be able to count on funding from the IMF only at observance of several conditions. This is emphasized in the documents distributed by the Foundation in connection with change of its policy in this matter.

On Tuesday, the Board of Directors of the IMF, despite the objections of Russia, has lifted a ban on lending to defaulters according to the official debt.

The Terms Of The Fund

Under the new policy, the debt disputes and can continue to be settled on the terms of the Paris club of sovereign creditors. But in some cases such an agreement may be possible.

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“In such situations, – stated in the official report of the Fund, a decision must be due to the need for urgent support from the Fund; a judgment that the debtor has made good faith efforts to reach agreement and that no debt restructuring is caused by the unwillingness of the creditor to reach an agreement corresponding to the parameters of the Fund-supported program; and a judgment about whether a decision on lending will negatively affect the Fund’s ability in the future to build packages of official financing”.

Impossible condition?

In relation to the current situation around the debt of Ukraine to Russia among the three most interesting second.

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To acknowledge him is made, obviously, it is first necessary to consider “good faith efforts of the debtor” calls Kiev to Moscow to recognize obviously official duty commercial and to agree to its restructuring, along with other commercial loans.

In addition, Russia would be accused of “unwillingness to reach an agreement” with the debtor. Meanwhile, Moscow was publicly offered to the over payment on the debt of Ukraine for the years 2016-2018 $1 billion a year, that is agreed to even more favorable for Kiev terms than other creditors, but only under reliable guarantees of the West.

Denying the obvious

Interestingly, the official representatives of the Foundation deny link of the current “reform policy” of the IMF with the situation around Ukraine.

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In an interview with corporate edition of the IMF Survey (“Review of the IMF”), the Deputy Director of Department of strategy and policy review Foundation Hugh Bredenkamp to a direct question on this subject said: “the Need for this reform has been obvious for some time.” According to him, discussions on this topic started at the IMF in 1989, and then continued in may 2013, “when the Russian loan Ukraine never even existed.”

Interview that Bredenkamp gave in conjunction with the General counsel and the Director of the legal Department of the IMF Shawn Hagana, distributed by the Fund together with the report about the policy change – on the rights of the same official document. It also States that the reform was due to “the increasingly important role of such creditors, such as China, Brazil, India and Saudi Arabia, are not members of the Paris club”.

Moscow’s Position

Russia in this club just is. In the IMF Executive Board, she voted against the current solution, in her opinion, to help Ukraine to pay the Russian loan of $3 billion, maturing in the current month.

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The Chairman of the government of the Russian Federation Dmitry Medvedev in interview to five TV channels on Wednesday expressed confidence that the incident “seriously undermines the credibility of the decisions that are made by the IMF”.

“Of course, we do not accept, we will go to court, we will pursue defaulting on a loan and make defaulting on all debt of Ukraine”, – he said.

As explained korr. experts, the debt to Moscow, Kiev must pay for December 21. But the agreement provides for a ten-day delay. Thus, the default for Ukraine may come just before the New year.

“Good faith” negotiations with the debtors ‘ official creditors

A new IMF policies that allow the allocation of funding to countries with overdue sovereign debt, require from such countries a “good faith” negotiations with creditors and defines the criteria of such good faith. This was confirmed by high-ranking representatives of the Fund – General counsel and Director of the legal Department Sean Hagan and Deputy Director of the Department of strategy and policy review Hugh Bredenkamp.

The criteria of good faith

Answering a question on this subject, Bredenkamp stated that the debtor “first of all must go” to its official creditor – either bilaterally or as part of a group of creditors with a request for restructuring.

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“He is obliged to engage in a meaningful dialogue with the lender in an attempt to reach agreement – continued senior specialist. – He shall promptly provide to the lender pertinent information regarding financial situation and needs of the debtor. He must offer the lender conditions, in General, coincide with the parameters of Fund-supported programs”.

The latter requirement, as explained by Bredenkamp, “means that this program usually involves a certain amount of funding, a certain common approach to official debt”. If the debtor is seeking from a particular lender better terms than from the rest, “it is generally not a sign of good faith”, stated the expert.

Based on these “key considerations”, according to him, the Fund determines the approach to the concept of “tough creditor”. “It’s such creditor to which the debtor has addressed its request in compliance with all these requirements of good faith, he said. – And yet the creditor has not expressed the consent to participate in the debt restructuring”.

“Intractable” – a minority

Bredenkamp also stressed that, under the new policy, “when most lenders are not willing to participate” in restructuring, “the Fund generally will not lend to a debtor with overdue debts”.

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“Thus, recalcitrant creditors as a rule must be in the minority,” he added.

This thesis not once during the briefing was provided and Hagan. In General, both the expert assured that official creditors “particularly important” for the programs of the Fund, and therefore the more sensitive about the debts to them than the commercial sector.

The visibility of politicized

Attempts of the correspondent of TASS to project the whole discussion on a specific situation with a debt of Ukraine to Russia were unsuccessful. Both the IMF representative stressed that “will not discuss specific cases”. In the same spirit, they answered a question from journalists about the debt problems of Greece.

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On a direct question about such politicization of Hagan replied: “I Think when we assess the usefulness of this reform, we should proceed from the fact, does it address the overall weakness in the current system. And we have for some time pointed to the problem of collective action, such as weak overall.”

“The fact that this reform is carried out in the context of a specific case which illustrates this General weakness, in my opinion, does not undermine the value and legitimacy of reform,” he added Hagan.

Without a clear mechanism of implementation

The new IMF policy has no clear mechanism of implementation, acknowledged Sean Hagan and Hugh Bredenkamp. However, in their view, the absence of such a mechanism – the advantage of the new policy, rather than a drawback.

“This is typical of the whole policy of the Fund, said Hagan. – It does leave some things to the discretion of the staff and Board of Directors. No policy direction in the Fund is not sold by itself. But they are established criteria in accordance with which should show the same discretion. To ensure uniformity of approach to all member countries”.

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“Discretion”, according to Hagana necessary because “every case is special, and General principles should be applied in the context of the emerging circumstances.”

“You are quite right, – said the expert. Is this our new policy can’t be implemented itself. It requires judgments. And we actually believe that this is appropriate”.

Actually, in practice that discretion in the IMF, of course, can show only its governing bodies – the administration and the Board of Directors. And they by rules are fully controlled by the largest shareholders of the organizations – the U.S. and its allies. Accordingly, the explanation of Hagana follows that a strictly technical in nature, the problem of outstanding debts may well now officially be politicized “at the discretion” of the shareholders.