The International Monetary Fund (IMF) wants to buy time. The institution’s board of directors approved, this week, the recommendations of a group of experts to accelerate the IMF’s support programs for developing countries engaged in restructuring their debt. The proposed reform should allow the multilateral institution to release its financial aid more quickly.
“Some recent IMF-supported programs involving debt restructurings have experienced significant delays,” the Fund said in a statement. Between the time an agreement is reached between the troubled country and the fund’s mission members on the ground and obtaining the necessary assurances from official bilateral creditors leading to final approval of IMF financing, the deadlines are too long.
It took Chad eleven months. For Zambia it took nine months and for Ghana it took five months. IMF Managing Director Kristalina Georgieva’s goal is to reduce that time to just two or three months. Under the new rules endorsed by the board, the multilateral institution would accept a credible promise to restructure the debt held by bilateral creditors and not a formal finalized agreement.
China in question
The delays are mainly due to internal procedures in China, emerging markets’ largest creditor. Debt restructurings of over-indebted countries require the approval of the country’s Council of State, one of the highest decision-making bodies in the government. Its delays in processing debt restructurings stem from the complexity of China’s loan structures and lack of alignment with the standards of more established creditors, such as the Paris Club, of which the country is not a member.
The fund’s initiative “is above all an attempt to adapt to China’s internal processes in a responsible manner, rather than leaving countries like Zambia in the dark for several years,” Martin Mühleisen commented to Bloomberg. , a former IMF department director, now a member of the Atlantic Council. “The idea is that in the future the Fund will be able to lend sooner, once a country’s creditors have agreed to begin negotiations on the restructuring of public debt,” he added .
It is true that, since the creation of a common debt resolution framework under the aegis of the G20 forum, the restructuring of the debts of the most fragile countries is still slipping, despite tangible improvements.
Efforts over decades to resolve the debt problems of poor countries have been numerous, but, in the eyes of Rebecca Grynspan, Secretary General of Unctad, they are “too slow”, including the most recent measures of the G20 and of the International Monetary Fund. It is so slow and so complicated sometimes that it becomes a repellent, and countries “prefer to pay the interest on their debts, despite the exorbitant price that this represents”. This also causes a delay in their investments dedicated to sustainable development.
The IMF initiative will partly address the problem. Because this reform does not concern private creditors holding debt, whose restructuring negotiations often drag on.