IMF pitches deal for bankrupt countries

Argentina's woes added urgency to the initial idea

By Andrew Walker BBC economics correspondent

The International Monetary Fund (IMF) has published detailed proposals for dealing with countries facing unsustainable debts.

The idea is an international legal procedure that would enable countries to suspend debt repayments while they negotiate more manageable terms with their lenders.

The proposal is intended to deal with crises faced by governments in repaying debts owed to the private sector.

IMF officials feel that such situations end too frequently with a disorderly default that harms the population of the country concerned, the creditors who don't get paid and causes instability in international financial markets.

Unanswered questions

It happened just over a year ago in Argentina.

That experience gave some new urgency to an idea that had been discussed for many years.

Some developing nations think that such a system might lead to them paying higher interest rates

Andrew Walker

The basic idea is that when a country can no longer keep repaying its debts, it should be able to suspend payments and negotiate with creditors who would not be able to use the courts to sue for immediate payment.

The new IMF report spells out in more detail than before how the mechanism might work, and how creditors might be represented.

But it also leaves many important questions unresolved, such as whether a debtor country's decision to use the proposed mechanism would have to be authorised by some independent body.

The final decision on whether to adopt the IMF's proposals will be a political one for the member countries.

But many are uneasy.

The United States is wary of measures that would interfere with the normal legal rights of lenders.

And some developing nations think that such a system might lead to them paying higher interest rates when they borrow money.