International Monetary Fund VOLUME 32 NUMBER 1 January 20, 2003 In this issue www.imf.org/imfsurvey 1 Financing for IMF strikes deal with Argentina Argentina 1 MF Managing Director Horst Köhler has recommended for Executive Board AEA in Washington approval a transitional program for Argentina. The IMF said that while I 2 providing no net new financing, the arrangement would provide financial sup- Design of SDRM port and an extension of payment expectations to the IMF through August 2003. discussed The Executive Board is expected to review the transitional program in the 6 coming days. Fischer calls for “fairer” The policy commitments developed by the government under the new agree- globalization ment with the IMF could, if implemented consistently, nurture the macro- 9 economic stability seen during the second half of 2002 and build a bridge to a De Vries honored comprehensive program to be negotiated with a successor government after the 10 April elections. The new agreement with the IMF would also unlock funding Latin America still from multilateral development banks for social programs, which are key to pro- crisis prone? tect the vulnerable groups from the adverse effects of the crisis. 11 In a statement released after the completion of the IMF’s annual assessment African leaders of Argentina’s economy, the IMF said on January 8 that the country should tackle challenges focus on achieving a clear political consensus in favor of reforms, with a view to 15 building a sound fiscal framework, restoring confidence in the banking sector, Demekas on postconflict aid increasing trade openness, rebuilding legal certainty, (Please turn to the following page) and… 3 Annual AEA meeting Use of IMF credit Economists probe past, current crises for insights 12 Recent publications n early January, thousands of economists tradition- gram to Argentina’s recovery? The depth and length 13 Ially descend on a U.S. city for the annual American of the crisis—and the need to look to the future— New on the web Economic Association (AEA) conference. This year, the provided the impetus for Guillermo Calvo (Inter- 14 venue was Washington, D.C., which no doubt prompted American Development Bank), Michael Dooley IMF arrangements the unusually large number of policy-oriented panels (Deutschebank), Kristin Forbes (previously with the on top of the customary wide array of research-oriented U.S. Treasury and now at the Massachusetts Institute 16 IMF rates panels. Maureen Burke, Asimina Caminis, Jeremy Clift, of Technology), Nouriel Roubini (IMF and New York Elisa Diehl, Sheila Meehan, and Patricia Reynolds University), and Randall Kroszner (U.S. Council of highlight several sessions on financial Economic Advisers) to examine what crises and on the outlook for the U.S. went wrong and what it would take to economy. Coverage of additional panels sustain a recovery. will appear in the IMF Survey’s next Calvo, Roubini, and Dooley essen- issue. tially agreed that the severity of Argentina’s crisis was due to a combina- What has Argentina taught us? Why has tion of fiscal woes, a weak banking sys- Argentina been so hard hit? Was this cri- tem, and political problems. Calvo sis avoidable? Could the international emphasized that the drying up of finan- community have done anything differ- cial flows to emerging markets that 1 ent? And how important is an IMF pro- Guillermo Calvo resulted from (Please turn to page 4) ©International Monetary Fund. Not for Redistribution Argentina secures breathing space (Continued from front page) and restructuring debt with financial system. Looking forward, the IMF noted private external creditors. that it was important that the authorities garner the Elsewhere in the region, the IMF on January 15 necessary political consensus to carry out their policy approved a two-year, $2.1 billion Stand-By Arrange- agenda. Peru has a $340 million loan program with ment for Colombia in support of its economic pro- the IMF, which was approved in February 2002. The gram through 2004. The approval makes $264 mil- first review of the program, which was completed at lion available immediately. The authorities have the same time as the annual assessment, provides indicated that they intend to treat the arrangement Peru with $154 million in fresh funds. The country as precautionary. In announcing the loan, Köhler has not made any drawings under the loan so far. praised Colombia’s “strong reform program.” He The IMF completed on December 19 the first noted that “the Executive Board commends the gov- review of Brazil’s performance under the $30.7 billion ernment for its rapid and determined action to loan approved last September. Completion of the address the fiscal pressures, which emerged in 2002, review provides Brazil with $3.1 billion in additional and develop a comprehensive strategy for stability, funds, in addition to the $3.1 billion provided when growth, and improved social equity.” the program was approved in September. The As for Ecuador, an IMF mission is currently in Quito remaining amount—about $24 billion—will become to hold discussions with the new economic team on a available in 2003. In a statement released shortly after possible Stand-By Arrangement, as well as to complete the conclusion of the review, Köhler said that Brazil’s a long delayed overall assessment of the state of performance under the program had so far been Ecuador’s economy. President Lucio Gutierrez took “exemplary,” and he called on the new administration office on January 15, and his government is proposing to continue working to restore confidence in its econ- a comprehensive economic program to deal with omy. On January 1, Luiz Inácio Lula da Silva became Ecuador’s immediate fiscal pressures and to restart Brazil’s new president. structural reforms aimed at sustaining growth in the dollarized economy. For further information on these developments, please see In a statement following the IMF’s annual assess- the following items on Colombia (Press Release No. 03/04), ment of Peru’s policies, the IMF said on December 23 Argentina (Press Release No. 03/01), Brazil (News Brief No. 02/128), and Peru (News Brief No. 02/126 and Public that it was pleased with the country’s overall policy Information Notice No. 02/139). All are available on the IMF’s framework, which aims at maintaining macro- website (www.imf.org). economic stability and reinforcing an already solid IMF Board debates SDRM design n December 19 and 20, the IMF’s Executive tioners and other workout specialists, academics, and OBoard—chaired by First Deputy Managing members of the official community. Director Anne Krueger—continued discussions of In her summary of the Board’s discussions, Krueger the possible features of a new sovereign debt restruc- noted that “most Directors reaffirmed their belief that turing mechanism (SDRM). The discussion was a a carefully designed debt restructuring mechanism step toward fulfilling the International Monetary and can make an important contribution to improving the Financial Committee’s request for a concrete SDRM comprehensive framework for crisis resolution and proposal that could be considered at its next meeting the international financial architecture more generally. in April. The Board’s debate revolved around a staff The objective of the SDRM is to provide a framework paper that reflected extensive staff contacts with pri- that strengthens incentives for a sovereign and its vate market participants, debt restructuring practi- creditors to reach a rapid and collaborative agreement on a restructuring of unsustainable debt in a manner that preserves the economic value of assets and facili- Photo credits: Denio Zara, Padraic Hughes, Pedro tates a return to medium-term viability, and thereby Márquez, and Michael Spilotro for the IMF, pages 1, reduces the cost of the restructuring process. 4–10, and 15; Christophe Simon for AFP, page 16. January 20, 2003 “To achieve this objective, the SDRM must not 2 only address collective action problems among ©International Monetary Fund. Not for Redistribution creditors, but also catalyze an early and effective justified. They noted that several proposed features of the dialogue and exchange of information between mechanism would discourage abuse of the SDRM. the debtor and its creditors. By creating greater Furthermore, the IMF would be able to influence a predictability in the restructuring process, the SDRM member’s decision to activate the mechanism through its should also be expected to improve the functioning policy dialogue and the exercise of its financial powers. of international capital markets—an objective that • Consequences of activation. A central issue is should remain a primary concern going forward.” whether the mechanism should provide a stay on cred- While Executive Directors found much common itor enforcement. Many Directors favored keeping ground for moving the discussion forward, a wealth open the option of an automatic stay on litigation that of views were expressed on many aspects of a possible would remain in place for a brief period until creditors SDRM. For some important features of the mecha- were sufficiently organized to vote on an extension. nism, Directors insisted that all options under consid- However, many other Directors noted that an eration remain on the table at this stage. Although a automatic stay would constitute a significant, and brief summary cannot do justice to the breadth of the possibly unnecessary, erosion of contractual rights. debate, issues generating the most discussion They viewed the use of a more limited approach— included the following: which lawyers refer to as the hotchpot provision— • Scope of claims to be covered. Directors generally possibly supplemented by injunctive relief as a work- agreed that, in cases where a sovereign’s debt burden able alternative that would discourage litigation with- was unsustainable, a broad range of claims might out imposing a limitation on enforcement rights.