Sovereign Debt Restructurings and the IMF: Implications for Future Official Interventions

Abstract

This paper studies the role played by the IMF during sovereign debt restructurings and extract lessons for future official interventions. To do so, I compare twelve recent debt restructurings. I begin by detailing the main features ("restructuring strategies") of each episode. I then analyze the involvement of the Fund and relate it to the above-cited strategies. Despite the wide heterogeneity both in restructuring strategies and in the scope of IMF's involvement, the Fund exerted a substantial influence. This influence came, not only through the provision of official finance and by setting an adjustment path through conditionality, but also by providing independent information and influencing countries decision to restructure by providing incentives both to creditors and debtors. My conclusion is that the flexibility that has characterized the role of the IMF so far might have exacerbated uncertainty and induced undesirable strategies from debtors and creditors alike. Thus, the international community could benefit from granting the IMF a more standardized operational role, reducing gambling for resurrection strategies and fostering fairness. Along these lines, I present ideas for reframing the IMF's engagement in sovereign debt restructurings. ABSTRACT This paper studies the role played by the IMF during sovereign debt restructurings and extract lessons for future official interventions. To do so, I compare twelve recent debt restructurings. I begin by detailing the main features ("restructuring strategies") of each episode. I then analyze the involvement of the Fund and relate it to the above-cited strategies. Despite the wide heterogeneity both in restructuring strategies and in the scope of IMF's involvement, the Fund exerted a substantial influence. This influence came, not only through the provision of official finance and by setting an adjustment path through conditionality, but also by providing independent information and influencing countries decision to restructure by providing incentives both to creditors and debtors. My conclusion is that the flexibility that has characterized the role of the IMF so far might have exacerbated uncertainty and induced undesirable strategies from debtors and creditors alike. Thus, the international community could benefit from granting the IMF a more standardized operational role, reducing gambling for resurrection strategies and fostering fairness. Along these lines, I present ideas for reframing the IMF's engagement in sovereign debt restructurings.