Big Banks Step Up Efforts Against I.M.F. Debt-Relief Plan
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Big international banks are counting on the ouster of Treasury Secretary Paul H. O’Neill to help them block the creation of a bankruptcy system of sorts for nations drowning in debt. In September, Mr. O’Neill backed efforts by the International Monetary Fund to propose an international process under which a country like Argentina might renegotiate its debt with a committee of creditors. Big international banks, which hold billions of dollars in loans to governments around the world, have bitterly fought the idea because they fear that the new rules would protect insolvent governments even more than ordinary bankruptcy laws shield insolvent companies. On Tuesday, an alliance of banks, bondholders and institutional traders said the plan was based on ”false assumptions” and was essentially unworkable in any form. The alliance, whose members include banks like Citigroup and J. P. Morgan Chase of the United States and European banks like UBS and Deutsche Bank, said that ”no changes in any specific aspects” of the plan would ”alter their serious concerns about the proposal.” The alliance is headed by the Institute of International Finance, a lobbying group in Washington. The financial collapse of Argentina over the last year has made the issue of debt restructuring more urgent to governments around the world. Fund officials argue that the world needs a system that will make it easier to anticipate a financial crisis and then react to it. The essence of its plan would be to create a set of rules under which a government would be able to negotiate a debt restructuring if it could reach agreement with creditors holding 75 percent of its debt. One advantage of such rules, officials argue, is that the restructuring process could not be dragged out by one or two creditors who refuse to sign onto an agreement. Mr. O’Neill infuriated many financial institutions by resolutely supporting the idea of a ”two-track approach” to sovereign debt. The first approach, which private banks tend to support, calls for writing new clauses into loan contracts that would set up procedures for dealing with countries in danger of defaulting on its loans. The second track would create a set of international rules and procedures, possibly under the auspices of the fund, about when a country is effectively bankrupt and what to do. Mr. O’Neill did not endorse a specific approach for the fund, but he joined other international leaders in September by calling on the I.M.F. to offer a specific proposal by next April. At the time, he compared the two approaches to the need for having more than one tool in a tool kit. Thomas Dawson, a spokesman for the fund, dismissed the complaints of bankers as ”old wine in new bottles,” adding that ”the two-track approach has broad international support” from governments around the world. |