Transcript

Transcript of an IMF Economic Forum: A New Approach to Sovereign Debt Restructuring: An IMF Proposal

January 22, 2003

(View this panel discussion using Windows Media Player.)

Welcome by Jack Boorman, Special Advisor to the Managing Director, IMF
Anne O. Krueger, First Deputy Managing Director, IMF
Ann Pettifor, Programme Coordinator, Jubilee Research
Agustin Carstens, Deputy Minister of Finance and Public Credit, Mexico
Stephane Pallez, Vice Chairperson, Paris Club
Barry Herman, Chief, Finance & Development Br., United Nations

MR. STARRELS: Well, I think we're ready to begin. On behalf of the IMF's External Relations Department, welcome to the International Fund and to this year's first Economic Forum.

This evening's event is the concluding act of a day-long conference on one of the most pressing issues confronting the international community: how nations handle unsustainable sovereign debt and the IMF's proposal to address this challenge through the sovereign debt restructuring mechanism.

After opening statements by members of the panel, you will be welcome to join in the discussion with your questions. If you do, kindly remember to use the microphone attached to each of your seats and to identify yourselves.

To get us moving in the right direction, I take pleasure in turning the floor over to Jack Boorman, Special Advisor to the IMF's Managing Director. Please.

MR. BOORMAN: Thank you very much, John, and, first, apologies for starting a few minutes late. As I look out here, I knew that when we were coming into this we had a formidable panel prepared. I'm impressed by the fact that as I look out, we have an equally, if not more, formidable audience.

In light of that, I would suggest that, when I turn the microphone over to the various speakers, people be brief so that we can give as much time as possible to the audience. It is, after all, for you people that we have organized this session. I'd like to see sufficient time for discussion and debate if that's what you would like to do.

Let me first introduce the speakers. On my right is Anne Krueger, the First Deputy Managing Director of the IMF. Ms. Krueger has got to catch a plane, go to various places on other continents, and she's going to depart after 20-25 minutes. So I will ask her, in fact, to speak first. But before I do, let me introduce the other people on the panel.

Sitting on my immediate left is Ann Pettifor, who is the Director of Jubilee Research at the New Economics Foundation.

To her left is Stephane Pallez, who is the Deputy Director of the French Treasury and one of the guiding lights in the Paris Club.

To her left, Agustin Carstens, who is the Under Secretary of Finance of Mexico.

And, finally, at the end, Barry Herman, who is the Chief of the Finance & Development Branch of the United Nations Department of Economic and Social Affairs.

Without further ado, Anne?

MS. KRUEGER: Thank you, and let me add my welcome to that of everybody else to this forum and to the discussion of the sovereign debt restructuring mechanism.

For the past year or so, we've had very good debate, I think, regarding the need for and the design of a sovereign debt restructuring mechanism. At today's Economic Forum, we want to offer a brief summary of our analysis of the problem with the current practice of sovereign debt restructuring and our proposals for a new mechanism.

We'll then have the opportunity, as you know, to hear from the others who can speak about it, and they earlier today did participate in the all-day conference and will be able to share with you some of the major themes.

Let me just say a few words at the outset. Why has the Fund and the international community more generally devoted so much time and energy to improving arrangements for sovereign debt restructuring? The problem we are seeking to address concerns the hopefully rare circumstances in which prevention has failed and where a country's debt burden has become unsustainable--that is to say, cases where there is no realistically feasible set of economic policies, short of a miracle, that are likely to be politically sustainable, that offer the prospect of allowing the member to regain viability carrying the load of debt that the member carries.

There's typically at least a brief period, and often a longer one, between the recognition that a member has an unsustainable debt burden and the outset of a full-blown debt crisis. During that period of time, there is very often a period of falling real output, very high real interest rates, accelerating inflation, and other problems.

In these circumstances where debt is unsustainable and people are beginning to recognize it, time makes matters worse and it loses value for all parties. The challenge is to establish a system that increases the likelihood that agreement will b reached on a restructuring, that combined with the sustained implementation of appropriate policies offers the prospect of restoring sustainability while limiting the scale of economic dislocation, and preserving assets' economic value.

The debate over SDRM--and the more general debate over the need for a restructuring mechanism of some kind--has highlighted a number of key issues that determine the pace at which agreement can be reached on restructurings and on the shortcomings of the existing system. Sound macroeconomic and structural policies are obviously key. They have been and they will continue to be. But transparency and predictability in the restructuring process are also important as they will facilitate creditors in performing their due diligence and ease and speed up the task of achieving adequate inter-creditor equity.

What I want to do is limit my remaining remarks to the key market failure, which is the failure of collective action. This market failure, which provides the rationale for public intervention, complicates the process of reaching an agreement on restructuring. If you only had one creditor, there would be no problem. But when there are a lot of individual creditors, the danger is that they decline to participate in a voluntary restructuring, or at least delay their participation, in the hope that they can get paid on the original contractual terms, even though creditors as a group would be best served by agreeing to a restructuring. And that problem is most acute prior to a default. Following default, the options facing creditors, particularly those without an interest in litigation, are more limited, and so the problem is less acute. The collective action problem is at its worst when the potential gains for solving it quickly are greatest.

In our efforts to improve the resolution of cases in which sovereign debt burdens have become unsustainable, we're pursuing a twin-track approach: we're encouraging the adoption of collective action clauses in bond contracts and, at the request of the International Monetary and Financial Committee, we're preparing a concrete proposal for a statutory mechanism.

At the same time we're working on the development of a voluntary code of good conduct in the hope that establishing principles of best practice could in itself help improve the environment for the resolution of debt difficulties.

While we are pursuing the twin-track approach, the topic of today's forum is the SDRM, so the discussion here is limited to that. So we're not going to broaden it to the pros and cons of collective action clauses.

Let me turn it back to you, Mr. Boorman.

MR. BOORMAN: Thank you very much, Anne.

Let me turn now to someone who comes at these issues from a slightly different perspective than some of the rest of us and give the floor to Ann Pettifor.

MS. PETTIFOR: Thank you very much.

First of all, I want to just introduce myself. My name is Ann Pettifor, and I'm Director of Jubilee Research, as Jack has mentioned, and I was Director of Jubilee 2000 in the U.K. and one of the co-founders of the International Jubilee 2000 movement.

I want to begin by thanking both the Managing Director and Anne Krueger, both for having me here because I think it's quite a brave decision, given that I'm going to be quite critical of the proposals that have come out from the Fund; but, above all, for the way in which this process has been managed. I was around for the design of HIPC, and while I'm conscious that Jack Boorman is looking at me while I say this, I have to say that the way in which the design of the SDRM is being conducted is much more open and transparent and participative. And I would like to congratulate the Fund on that because I think it indicates a degree of intellectual confidence which is very welcome.

But, above all, it allows those of us who this morning were described as the global taxpayer to take ownership of an institution which is indeed a creature of international taxpayers.

So I was going to have a fancy presentation, but as always, these things don't go to plan. Is there a possibility we can still do it?

MR. : Yes.

[Pause.]

MS. PETTIFOR: Now, I was going to start by saying--and you'll see this from my opening slide--by punishing the staff of the Fund for coming up with extraordinarily complicated and long acronyms, which are very difficult for those of us in civil society to have to cope with, by giving my own version of this particular acronym, and you'll see it when it comes up.

[Laughter.]

[Pause.]

MS. PETTIFOR: -- this afternoon which didn't give us time to set this up, for which I apologize.

Now, Jubilee 2000 has been described as one of the most effective global campaigns ever, and indeed I humbly suggest that it was one of those things. And one of the things we did was that we mobilized the signatures of people around the world. We mobilized the first ever global petition, and 24 million people, as far as we know, signed it because 24 million petitions was all that we were able to collect. And as you can imagine, collecting petitions from around the globe was not easy for what was effectively a voluntary organization.

But we did collect 24 million signatures from people, and they signed a petition which called for the cancellation of the unpayable debt of the poorest countries by the year 2000 under a fair and transparent process. And indeed that was at the heart of the campaign when the campaign was launched.

We recognized right at the beginning that what we were doing is we were asking powerful creditors, the G-7, to do themselves harm, if you like, to face losses and to write off debts. And in doing that, we were asking people to act charitably and also asking them to behave unnaturally. It is absolutely unnatural--"It's against their religion," as one banker once said to me--to write off debts.

And what we were conscious of back in '94 when we designed the campaign was that we needed to alter the structural relationship between international creditors and sovereign debtors. And so we called for a fair and transparent process.

And when we did so, this work was based on the work--this call was based on the work of Professor Kunibert Raffer from the University of Vienna, who had long before that, together with others--and indeed together with UNCTAD--called for an international insolvency framework modeled on Chapter 9 of the U.S. legal code. And I would like here to pay tribute to Professor Raffer, who has worked very patiently with those of us in civil society who have tried to get to grips with very complicated law and economics of this institution.

Anyway, partly as a result of our campaign, HIPC was launched, and then eventually HIPC II. And I don't want to go into HIPC at great length here, but to date, only six countries after HIPC was launched in the spring of--the first paper was launched in the spring of '94--only six countries have had the stock of their debts cancelled since the launch of HIPC I. And according to the Bank and the Fund, at least 13 out of the 20 countries in the pipeline will not be sustainable after debt relief. In other words, HIPC is not working. It isn't providing the kind of exit relief that Jim Wolfensohn promised us at the beginning of the process.

And then, again, to touch on very sensitive wounds within the Fund, there are the cases of, on the one hand, Argentina and, on the other, of Uganda. And of 19 IMF programs in Argentina since 1957, 15 have had loans disbursed without Argentina meeting the IMF's conditionalities, and 4 were met--where they were more coherent in meeting those conditionalities, there were waivers and exceptions. And at the end of the process, Argentina is still in deep trouble and Argentina is still effectively in default. The same applies to Uganda, which has been perceived widely as a model IMF pupil. Uganda still has serious debt problems.

So that's the bad news. The good news is that HIPC set some excellent precedents for the whole process of writing off debts. First of all, it was a comprehensive approach, the first historically comprehensive approach to unpayable sovereign debts. Secondly, it included multilateral debts as well as commercial debts. Thirdly, it encouraged transparency and participation of civil society through the Poverty Reduction Strategy Papers, and we have criticisms of all of those elements. But the truth of the matter is that in that sense HIPC was a path-finding initiative and in our view lays the ground for the next stages.

Now we come to the point about SDRM, to discussing SDRM. Do we think that SDRM, the sovereign debt restructuring mechanism--or, as I have named it, the self-defeating rescheduling mechanism. Would that be fair? And our conclusion is no, it would not be fair because under the rule of law, wherever you have the rule of law, it is not appropriate to be judged in one's own court. And under the sovereign debt restructuring mechanism, the IMF, both as a major creditor in her own right but also the agent of creditors, is the judge effectively in the court of the SDRM.

We believe that this process is being driven by institutional self-interest because the sovereign debt restructuring mechanism would enhance the role of the Fund and would enshrine the international role of the Fund in law.

It's not fair because the rule of law doesn't apply to the institutions themselves. We note that the World Bank and the MDBs charge their clients for the cost of building up loan loss reserves for lending to those clients. They make charges to those clients for the building up of loan loss reserves, but they do not use those loan loss reserves on the whole for debt cancellation. But this is in their Articles. It is in Article IV, VI, and VII that they should provide methods of meeting liability to the Bank in the case of default, and the Bank refuses to do that.

Now, this is robbery of the poor states, on the one hand, in that they're being charged for these loan loss reserves, and in our view it is negligence also on behalf of civil servants in not meeting their constitutional obligation.

The other reason why we believe the sovereign debt restructuring mechanism is not fair is because the IMF shapes the outcome, as was admitted this afternoon in the panel, in advance of the process. So the IMF by determining debt sustainability in advance preempts and hollows out, if you like, the SDRM process.

The IMF could and will set the sustainability ratio to a level which does not place its own claims at risk, even if legally those claims are exempt. And if other creditors have to write off more debts, the IMF's claims will be safe.

The IMF effectively under the SDRM writes the plan, the composition plan. As IMF determines economic policies, the IMF not the debtor, or even a combination of the debtor and the creditor, writes the economic plans.

Private creditors effectively cannot vote on anything of importance under the SDRM. Theoretically, their only room for maneuver would be to cancel more debt than the IMF has already predetermined, and that is highly unlikely.

Now, in our view, private creditors have borne the burden where the multilaterals haven't taken in--and I include the Paris Club, of course, in this--have not shared in the burden of debt cancellation. And we want to give the example of Ecuador where, under the Brady Plan, private creditors wrote off 45 percent of debts back in the 1980s. In 1999, Ecuador defaulted again, proving that the Brady Plan did not solve Ecuador's problem.

Now, if all creditors, including the IFIs, had only written off 30 percent of their debts back in the 1980s, then the banks would have minimized their losses, and we believe Ecuador would have been sustainable. But in the event of the official creditors not taking their share of the haircut, they extended the period of unsustainability.

Next, we believe it's unfair to the debtor because, like the Miyazawa plan, the Brady deal, the HIPC I and HIPC II, there is no resolution of the crisis. We think it's unfair to the debtor also because the IMF staff act as external consultants and often oblige decisions on the debtor, but are then exempt from the risks associated with those decisions. Indeed, the IMF gains from wrong decisions because it actually attracts new repayments. The IMF in a sense is isolated from the market mechanism.

There are specific elements to the SDRM which are very unfair to the debtor as well. The SDRM can be terminated irrespective of responsibility for that termination. There are sanctions against the debtor for blocking the SDRM, but no sanctions against other parties for effectively blocking the SDRM. And so we think there is some bias. And it was very plain in today's discussions that overwhelmingly the concerns are for the rights and the interests and the concerns of the creditors. What we've said in Jubilee 2000 from the beginning is that it takes two to tango, that both are co-responsible for the crisis. That has to be acknowledged in law.

So it's unfair to the debtor. Now, there's the question of no stay, and we are concerned about that because we believe that without a stay, an automatic stay, it is unfair on the debtor as it uses up the debtor's scarce resources in litigation. While there's no general prohibition in the IMF paper, but if under litigation one creditor appears likely to get a better settlement than the majority, then a stay will, of course, be imposed. So no general automatic stay it seems to us is actually a mockery of the process.

What we really like about the SDRM and what we truly welcome is its call for further accountability and transparency in the whole process of debt crisis resolution, not to the Fund--and I'm quoting here from the IMF's paper--but to the world at large. And we think that's extremely important and builds on what, A, Professor Raffer and, B, the civil NGOs have been calling for for some time.

The paper calls for hearings of the SDDRF to be public, and we think that's important, and for an annual report, and we really welcome these because we believe transparency is the only way to tackle the immense amount of corruption associated with international lending and borrowing.

And then the issue of checking claims against national laws to ensure that individual borrowers, officials of the state, or of the central bank who have borrowed have followed legitimate procedures, and we think this is a really excellent way in which to begin to tackle the kind of corruption associated with much of the debt. So we welcome that very much.

But will the SDRM return debtors to viability? We don't believe it will. We think it is actually another Brady bond deal. If you look at Footnote 17 on page 36 of the IMF's paper, you will see that all unsecured creditors will receive a combination of cash and new securities, just as they did under the Brady bond deal. There will not be a return to viability, we believe, because in a sense it's IMF business as usual. The IMF says the paper will withhold financing or it says continue to support members, notwithstanding lack of progress in negotiations, almost regardless of progress in negotiations. In other words, whichever side fails to please the Fund will be opposed by the IMF. This perverts the whole concept, we believe, of insolvency protection.

So we are critical. While we welcome elements of the SDRM and while we welcome the move that the Fund has made towards the complaints made and the advocacy undertaken by civil society, we still feel that the proposal is fundamentally flawed.

We are calling for an independent neutral body. We believe it should be ad hoc. We believe we could set it up tomorrow in Argentina. Indeed, we believe that there is a great urgency to setting up an ad hoc panel in Argentina to begin the resolution of that appalling crisis. We believe all it would take would be a body nominated in equal numbers by the debtor on the one hand and the creditors on the other and for those nominees to elect one further person for an uneven number.

We believe that it should be a transparent and accountable process, and, above all, we believe that citizens in the debtor country and indeed in the creditor country should be given the right to be heard.

As Glenn Hubbard said this morning, there are three parties to this debt crisis resolution: there are the creditors, there are the debtors, but there are the global taxpayers. And there are the taxpayers in debtor nations. We are talking, after all, about public money, not private money. The taxpayers in debtor nations but also the taxpayers in the creditor nations where often very bad lending has taken place.

We want debtor protection, respecting, and I quote from the Fund's paper, not interfering with the sovereignty of debtors, which we welcome. And we want equal treatment of creditors. We've formed an unholy alliance here with private creditors who we believe needed to be treated fairly.

We want a poverty action fund which would guarantee the functioning of the debtor as a viable public entity after the [inaudible]. And, above all, we want these poor debtor nations to be given--not the nations, but the people of these nations to be given a fresh start. That is our approach to the SDRM.

Thank you very much.

[Applause.]

MR. BOORMAN: Thank you, Ann. You didn't fail the billing to bring a different perspective to the issue.

May I ask now Agustin Carstens, who is the, may I say--I won't say the "representative" of the debtor countries, but he is the only one on the panel who is from a debtor country, with views on the proposal on SDRM.

MR. CARSTENS: Yes, thank you very much, Jack. I want to at the outset thank the Fund for having invited me to be present in this event, a very important event. I think the outreach effort is more than welcome in discussing this very difficult subject matter.

The view of--my personal view and the view of many debtor countries is, of course, that it is very important to have in place a reliable or several reliable mechanisms to go ahead and obtain the resolution of debt issued by countries that run into problems. We need reliable mechanisms to solve cases of debts that run into trouble.

The real question in this particular panel is if the SDRM is the mechanism or is the best mechanism. Certainly the objective or what it pursues is good. It's obviously shared. I think that the Fund has been very receptive in including different ideas and in having the mechanism evolve through time. The question is: Have we really reached a satisfactory situation? And there my opinion is that definitely we haven't gotten there.

Is there the possibility of reaching that point under this framework? Well, the jury's out and I still--I won't really venture an answer in that respect.

From a debtor point of view, what is a matter of our concern are several points. One, which probably might seem very simplistic to many of you, but we have seen acute criticisms and discomfort with the mechanism by creditors and where market participants, if we want to be engaged in market transactions, if there is a concern of market participants on the lending side, it becomes a problem of the borrower.

I would say that the main issue that is of concern on the lending side, and in that regard a consequent concern on the borrowing side, is that the mechanism is being perceived as inviting debtors to unnecessarily declare defaults. The issue is that, as this mechanism is perceived as increasing the probability of default, that will increase the pricing on the debt and make it more difficult for emerging markets to tap the international financial markets.

There are other concerns that we have with respect to the proposal. I would say that one is--or I would state my concern as a form of a question. Do we have really enough evidence that the collective action problems that have been addressed require the creation of such an infrastructure to tackle [inaudible]? If we do a precise diagnosis of countries that have run into trouble and difficulties they have faced in renegotiation, can these problems be attributed mostly to this collective action problem? And I would say that at least the evidence that I have seen probably does not direct us in this--or point in this direction.

There are other issues that--it's not a problem that it is easy to resolve, but at the same time, it has to be borne in mind, and that is how to deal with the variety of debt that is being issued by a country or by its nationals, the different type of creditors that it has, and the type of claims that exist, which really brings a degree of complexity to solve an overindebtedness problem that requires far more flexibility than what the SDRM really shows.

All in all, we see that as the SDRM is presented right now, it would be very difficult to fulfill with that mechanism two premises that are being looked after in debt restructuring which is, one, inter-creditor fairness and, second, to assure the return of debtors to a sustainability situation.

The Fund in its proposals has been advocating for different principles that need to be observed, and we fully coincur with them. For example, just trying to summarize them, a process of debt restructuring has to be transparent. A lot of clarity should be given, a lot of information should be given to market participants. Second, in the restructuring process, the debtor country should give confidence on the adjustment path that it will follow as a necessary complement to any debt restructuring. Third, the mechanism should provide confidence to the different creditors that they will be treated fairly. And, fourth, that we are working in a legal environment that is efficient and that will provide for quick resolutions of problems.

I think these characteristics can be fulfilled in mechanisms that are more flexible than the SDRM, or the SDRM should evolve further so that it complies with these principles that will not generate the externalities that we are afraid of that the SDRM has and that the different creditors are afraid and that has been expressed in different fora.

So I applaud the effort of the Fund to really--all its efforts in trying to tackle this very difficult issue. I think a lot has been done. As I said in my previous presentations, we are very close to reaching a consensus, but at the same time, we're still very far.

So let's keep the work going. These exercises are very useful, and hopefully soon we will have a mechanism in place that would be more friendly to the markets and that would guarantee continuous access to emerging markets--emerging countries to the markets with security for creditors.

Thank you very much.

[Applause.]

MR. BOORMAN: Thank you, Agustin. That's the second round of applause you've gotten today, Agustin.

May I turn the floor over now to Stephane Pallez.

MS. PALLEZ: Thank you, Jack, and thank you for inviting me to participate in this--in fact, in those two days, because we've been actually spending two days talking about SDRM. For sure we have not exhausted the subject, but I think that it's fair to say that through these exchanges I hope that we have reached more consensus, as Agustin was saying, at least on the--surely on the problem, and maybe on the solution.

I think that the fact that we've been--we are able now to achieve more consensus on the problem is not something that should only be minor in this exercise. What is the problem that the IMF wants to address in its proposal and that we think is very key and urgent to address today is really to deal with collective action issues and to really be able to find--to be able to take early and preventive action in front of unsustainable debt situations, and in the mid-term then to ensure sustainable finance to emerging market economies by having a more predictable and organized mechanism. On the whole, this we believe would reduce the cost of those situations, and it would reduce the cost, of course, to taxpayers (?) countries. And that's why I think it's quite important and topic in these two days' context.

I hope also that we can find consensus on the fact that SDRM does not solve all the problems and all the issues. There is certainly a tendency to link SDRM with a number of existing problems or current issues--not to say that they are not important, but sort of asking SDRM to solve all the issues at once. And I think it's not completely fair to ask this of this mechanism. These problems need to be addressed, and they have a link in the sense that the IMF is very much at the art of addressing those problems, particularly, of course, I'm talking about prevention mechanism.

One lesson that we draw from the current crisis is that prevention mechanism needs only to be reinforced. But I think that's not the issue the SDRM addresses as such.

Another issue, of course, is what we call orderly access to capital markets with (?)-ation of capital accounts. It is also something that has some international links, but it's not SDRM that would solve it at once.

I would say the same thing, and I could come back to that later if you want, about HIPC. I think HIPC and SDRM--even if HIPC countries are not, of course, excluded from SDRM, but I think the essence of the issue is quite different. Not to say that HIPC, again, is not important, it's still on the agenda of G-7 and it will be this year in the agenda of the summit, as has been the case. But it's not the same issue.

Of course, we found less consensus when we turned to instruments that would address those problems, and particularly when we turned to statutory mechanisms such as SDRM, because the different parties have a tendency to see, of course, and to evaluate precisely what freedom they would lose in those mechanisms, and not to see, of course, the collective gains that the international community would derive from this system.

We--and when I say "we," I take my French hat--we strongly believe that the kind of mechanism that is designed by the IMF is probably the only answer to some of those problems, not to say that contractual mechanisms are not useful, but they cannot address all the situations, all the flows. So we believe there is certainly a lot of reason to look at those mechanisms. It doesn't mean that we have solved all the issues. For those that have been in those conferences for those two days, there are a number of very tricky and technical issues, and, of course, a bigger question, which is whether it's achievable. I would say achievability is much more dependent on political will, but we really believe that it's worth spending this time and trying to overcome these difficulties.

I think it's important also, while we try to overcome these difficulties, to still being able--and in a way, that's what we're doing here--to explain why we're doing it and how does it function to a larger audience, because as has been rightly said, it's not something that should be only debated for bureaucrats or specialists. It is fairly technical in a sense, but I think it really needs to be able--we need to be able to explain it to a larger audience. And when and if we may come to results, I think we have to be able to explain what are the principles that have guided our reasoning.

So I won't dwell into the different question system because it has been done already and, of course, we can do that later. But I really think that we should really keep the momentum, and as has been asked, we should at the IMF presenting concrete proposals on the basis of all the comments that have been received today and I'm sure will be received in the next weeks and months. We should really, I think, still devote some effort to be able in April to judge whether this mechanism does receive consensus, is feasible.

Maybe one word on Paris Club because that's sort of my other hat, and it's also part--I hope part of the solution rather than being part of the problem. One word, because one of the questions that has been asked is whether the Paris Club was in or out of SDRM. I would say that the Paris Club creditors have entered a very concrete thinking and dialogue, not so much about inclusion or exclusion, but really the question being how the Paris Club does function and in a predictive way with the SDRM in place. And why was this question important? Because the Paris Club, even if it's criticized--and I know there are those critics--it is an existing framework that is working, and even if we have some debates with private creditors about this, there is, I think, more predictability and more efficiency on the Paris Club than on the private creditor side. And this is something that is certainly also a public good that the international community does not want to throw away for a new mechanism that you don't know how it will work.

So basically what we want and what I think the international community should want is that the Paris Club in this system does still continue to perform what is asked from it, and this is asked, again, by the IMF, by the debtor countries, also, which I think have interest in this mechanism being quick, efficient, and so on.

So this is not to say that Paris Club would not be changed by SDRM. Of course, things will change in the sense that we will--with SDRM or some equivalent mechanism, we will have probably in front of us or beside us--I don't know how to say it--a much more organized private creditor community, which is, in fact, I think a good thing. Because right now we have an issue, which is the Paris Club is quite organized, and we don't have in front of us something equivalent to have dialogue with. So when the private sector is asking for more dialogue, we are basically asking: Well, who are you? Who do you represent? What are you going to do with what we're saying? But, still, we're trying, I think, to push for this dialogue because we think that in two days' words, it is something that is quite essential.

I will stop here in the interest of brevity and debate, and just to conclude, I think I would like again to state that I think we should all be very constructive about this, of course, with intense debate. And I really do think that the IMF should be supported in its effort to find something that is in the interest, I think, of the global international community.

Thank you.

[Applause.]

MR. BOORMAN: Thank you very much, Stephane, and thanks for the remarks about the Paris Club. That's very helpful.

May I turn now to Barry Herman.

MR. HERMAN: Thank you, Jack. It's a pleasure to be here, and I thoroughly enjoyed today's conference.

The basic thrust of what I want to say is that, despite all the discussions we've had, we need a lot more discussions. We're not--I don't think we're there yet, and we need discussions in more forums and different kinds of engagements. But there is history to be made here, and I think it's worth doing all that.

But what I have is essentially seven questions. I think I have ten minutes, so I think I can do that. But, in a way, maybe it's a little bit of a summary of all that has been happening.

First, is there a problem? Well, some people today said there really was no problem, that the existing mechanisms are quite fine. The head of the Emerging Market Creditors Association I believe was one of the advocates of that view. I only wanted to ask him then I guess Argentina is under control and everything's settled, and it's nice to know that nothing more is needed. I think he's probably not -- [tape ends].

So I think most of us think there is a problem. Is a minimum change, like collective action clauses, sufficient to deal with the problem? The problem, of course, is the collective action problem that you've heard about so much. I don't think so. Within domestic economies, you know, bankruptcy courts and bankruptcy legislation is the norm, and it's advocated, but it apparently is not needed internationally. Whatever mechanisms you need to resolve problems domestically are not needed internationally. To me, that also doesn't make sense. Of course, there's no world government, so that's a major difference, but it doesn't mean the collective action problem goes away.

Next question. Is the problem just debt negotiation processes?

No, it's much more than that, and it begins way before there's a debt problem. It's interesting that the IMF has been promoting the idea of standards and codes for several years. When it began discussions with the financial sector, through the Capital Markets Consultative Group, the first thing they decided to work on was something else. It was about having dialogue, about investor relations programs. Indeed, in our Financing for Development Conference in Monterrey, Mexico, in the Monterrey Consensus, there's a bit about some of these same kinds of concerns.

The heads of state in government that went to that conference encouraged, and I'll quote here, "public-private initiatives that enhance the ease of access, accuracy, timeliness, and coverage of information on countries and financial markets which strengthen capacities for risk assessment," and it called for consultation mechanisms between creditors and debtors.

Indeed, there was, at the International Business Forum, which was the private-sector part of the Monterrey Consensus, there was a proposal to create a global clearinghouse of multi-sourced information on developing countries and on relevant industries, with an investor-friendly user interface, to which could be affiliated a series of intranets--these are closed communication devices--for debtor-creditor conversations.

This proposal actually got some funding from Norway and the Ford Foundation, and there's a prototype that's in development. Well, if you're interested further about that, come see me after, and I can tell you. We're not doing it at the UN. This is a private-sector initiative.

But that idea of regular and even intense, sometimes intense communications between the creditors and the debtor are important. Of course, some private-sector people have access to Ministers of Finance and others, but you know there's money to be made on that information. What I'm talking about is information to the creditor community, to the buy side, in particular. That probably needs to be strengthened.

There are some initiatives like Mexico, for example, has conference calls, and some other countries do that sort of thing. We're just saying that this is something that could be built upon.

Next question. Is there appropriate burden sharing among the creditors?

In New York, if you find an international banker and you say four words to him, you'll get a rise, right? The words would be Russian Federation and Paris Club, right? Because they sort of feel that they got screwed in the sense that there was supposed to be a Paris Club arrangement to follow the London Club arrangement, and there was none. I'm not able to say whether that's good bad or indifferent, but the point is expectations were frustrated.

In fact, I would say that the idea of the SDRM, a comprehensive settlement of all debts that are eligible for rescheduling, restructuring or whatever, that's a great idea. The problem with the Paris Club is that, unless you're a low-income country, they don't want to reduce the level of debt they will reschedule.

So if you have a country, say, Argentina, with unsustainable debt, well, all they can get from the Paris Club is no reduction in the present value of debt, so that doesn't seem to be right. The Paris Club would only be able to participate if there was a reprofiling of debt to not require a finding of unsustainable debt, so why not just have export credit agencies be another class in the different classes that would be brought together in the SDRM. I don't know, maybe my fellow panelists will have a reaction to that.

Next question. Is the deal sufficient to solve the problem?

I think you heard from Ann Pettifor that at least the NGOs don't generally think so. They have a very legitimate concern about poverty reduction, but I don't know that the details of the SDRM are the place to attack it. As was discussed within the meeting today, any development of a package of debt relief and structural adjustment is a result of a set of iterations.

There are negotiations between the debtor, and the IMF, and the creditors, and suppliers of other finance because you can't have an adjustment program that can't be financed, which means it's not that you figure out the adjustment program. You need the financing you need, and then somebody just puts up the money, either debt relief or a new finance.

So it's this iterative process, and I think the burden of their whole proposal about arbitration is let's take this whole problem at one go, and I think that intention is right, to take it all at one go. I don't know that arbitration--I mean, if the creditors and their lawyers get nervous with even collective action clauses and limited stays on litigation, they would have absolute apoplexy over, you know, enforced arbitration over all of their claims, but that is an important issue.

I might say that world governments are committed, through the Millennium Declaration, to achieving a set of goals by 2015. And we have a process of review of country progress towards the goals, and when countries are found not to be making adequate progress towards the goals, it's time to scream and say somebody has to do something different; countries, the international community and so on. It's much bigger than the debt situation, although the debt situation can play a role in the resolution.

Is the mechanism that we have sufficient? Well, actually, there is one other thing that might be suggested that hasn't really been put on the table yet. It's something that our Secretary General proposed in the report that we put forward during the preparations for the Monterrey Consensus. This was for a mediation process. Mediators can be quite helpful. They can help you save a lot of money and a lot of time by getting a sense of where everybody is and where the solution is going to be. Well, to tell you what our--and, you know, the UN is, of course, familiar with mediation. It's used in political processes all of the time.

So the Secretary General said an independent mediator, assisted by IMF and other experts, could be charged to facilitate arriving at an agreed financial package. The aim would be to ensure fairness, reduce financial uncertainties quickly and lower the cost to creditors, as well as to the debtor, of arriving at a final debt restructuring agreement.

To complement other initiatives underway, the potential value of a mediation-type mechanism deserves particular attention. Such a mechanism could be available to debtor countries as an additional voluntary option for restructuring debt from private and official bilateral creditors.

Last point is are we having enough conversation?

Actually, there are, I guess, three things that could happen in April when the International Monetary and Financial Committee considers the concrete proposal put forward by the Fund staff, which they requested.

They could say, A, great let's implement; they could say now we know what you're talking about, and we're against it, kill it; or they can say let's keep talking because this structure is not exactly winning enough support, it's too controversial.

My hope is that they come to the latter conclusion because I fear that even if they were to seek to implement what is on the table now, given the state of controversy about it, it would be quite problematic.

Now, last thing I wanted to cite is also a sentence from the Monterrey Consensus. We have an international commitment to actually have these conversations. It said, in one paragraph, "To promote fair burden-sharing and minimize moral hazard, we would welcome consideration by all relevant stakeholders of an international debt work-out mechanism in the appropriate forums..." it's plural "...that will engage debtors and creditors to come together to restructure unsustainable debts in a timely and efficient manner.

I would just stop there and say that, you know, hopefully this is, in spite of all of the talk, the beginning, not even the middle, of the historical process of inventing a way to effectively, efficiently, fairly deal with sovereign debt crises.

Thank you.

[Applause.]

MR. BOORMAN: Barry, thank you very much.

As you can see, we stacked the panel with people who are unabashedly full supporters of the SDRM, since we were holding this panel in the Fund! We have a diversity of views. Let me make just a couple of comments, if I may, before I turn it over to you people.

The point was made that SDRM would not solve everything. Stephane Pallez said that. I think there's a very important point in there that we need to keep in mind. There's a principle in economics that you ought to have one policy instrument for each objective that you have. I think that's an important point to keep in mind here. Now, that single instrument should be within a comprehensive framework, so you can look at what the contribution of each of these policy instruments is, but you shouldn't overload any one of them.

There was a tendency, at times, with the HIPC initiative to do exactly that. The HIPC initiative is aimed very specifically at a single objective, to try to reduce and make sustainable the debt of these poorest countries. But what began to happen was that when something would happen to the country, an earthquake or a famine, for example, more HIPC relief would be called for.

In the international community in particular, I believe that you can get into great difficulty when you begin doing that. There are other instruments to give humanitarian relief, to give emergency relief. God knows there is far too little aid provided to these countries, in my view, but there are other mechanisms to use to provide assistance when further difficulties confront a country. We should not create a mechanism for a specific purpose, like HIPC or like SDRM, and then ask it to do lots of other things that it was not created to do.

Secondly, let me clarify that the SDRM is a framework. It's a framework for negotiations between the creditor and the debtor. It is not a mechanism for imposing a precooked policy program or debt relief package or restructuring plan from the IMF on the country. It creates a framework in which, we hope, there can be a more orderly, speedier, and earlier process of negotiations between the debtor and the creditor so as to preserve value, to prevent the kind of awful collapse that has taken place in the economies of some of these countries that have ultimately had to go through a restructuring, like Ecuador or like Argentina at the present time.

So, it's a framework which allows those negotiations. But it has the very important benefit that all parties can act in those negotiations as if there were collective action clauses in all of the debt instruments that are on the table for negotiations and, if agreement is reached, minority dissident creditors are bound by that agreement as if there was a single law applying to all of those collective action clauses. That's what it tries to achieve.

Thirdly, let me clarify an issue on the Paris Club because I think there is some misunderstanding about this. This applies not just to the Paris Club, but also to other debts that may or may not be included within SDRM.

The point to be made is a simple one. We're not talking about whether or not there should be a restructuring of the claims of the Paris Club creditors or a restructuring of domestic debt. The issue is, rather, should that be done under, specifically under, and within the context of, the SDRM or should it be done in parallel? It's not matter of putting those debts aside and forgetting about them and not restructuring. That's an important point.

Fourth, Barry made the point that there needs to be a lot more discussion. I absolutely agree with him. We all agree with him, and I think the last two days has set an agenda and a menu for discussion that's going to go on for a long time. Someone made the point in one of the sessions that we had that it took the United States 100 years to get a bankruptcy law in place. I hope that that's not the agenda that we face on SDRM! But it's quite clear that there's very much more to be defined, to be clarified and so forth before something concrete can be put down.

But in the context of that, my own feeling is that, to Anne Krueger's great credit, what she did in November 2001 in launching this initiative has led to a year's worth of extraordinarily productive discussion. There's far better understanding. There may not be agreement, but there's far better understanding of these issues, and I think, most importantly, almost everybody now agrees that something new is needed to bring order to the process and to the problems that countries face when they have an unsustainable debt situation. That, in and of itself, is major progress, it seems to me, for the community.

And, finally, let me just make the point that this matter of arbitration and enforced arbitration has to be approached with enormous care. If anybody buying a debt has to worry about what's going to happen five years from now or ten years from now, when some panel is put in place to decide whether there was some corruption associated with it or it was in some other way odious debt, I guarantee you that the secondary market will collapse, and without a secondary market, you will not have new capital flows to emerging market countries. So you better be very, very careful about spooking the markets with the prospect of judgments to be made of that nature on the debt sometime in the future.

Let me ask people if they have comments or questions. I would only ask, one, that you identify yourself; and two, that you be brief and specific, if you could, so we can get a chance to attend to a number of people.

I'll take a number of questions. You can direct them to specific members of the panel, if you wish, and then we'll ask the panel to respond.

Yes, ma'am?

QUESTION: I have a question. First of all, I want to join in congratulating on the effort. This is a very constructive discussion.

I noticed that the discussion has been primarily focused on the details of the proposal and restructuring, which is very similar to the corporate restructuring, but I want to point out that it's similar in the structure. The biggest difference, and I'm glad that there were a couple on the panel that noted this, is that IMF is trying to replace, in my opinion, the capital market forces and to have a power to decide if, and when, the countries should declare default and go into restructure.

So my question is, if that's the case, is there a standard formula that would apply to all countries in determining when the debt is unsustainable?

The second question is, is there going to be grades[?] that are given to the country, where the country can use capital market tools to try to solve the problems; i.e., voluntarily or semi-voluntary exchanges, which Ukraine has done successfully, and Argentina has done less successfully.

And then right now there are already countries that could be very close to the unsustainable level of debt. What are you going to do about those?

MR. BOORMAN: Other questions or comments?

Yes, ma'am?

QUESTION: Listening to the presentations today during the conference, there was sort of an implicit, almost academic distinction in two fields, which is there was one group of people, mainly the creditors, which felt that having a mechanism such as the SDRM would increase the price of lending to emerging market states because of the increased risk of default. There's another field which says that it would decrease that price of lending because those people that know how those restructurings would take place feel that there's less risk when they lend.

I was wondering if any of the experience of the Paris Club could educate us as to how having a better system of restructuring does affect debt pricing in that way or whether there has been greater discussion among debtor countries as to whether there are some debtor countries which believe it could decrease, rather than increase, the price of lending.

And, by the way, I'm Lauren Phillips from the London School of Economics.

MR. BOORMAN: Thank you.

Other questions or comments?

Yes, sir?

QUESTION: Hi, Mark Egan with Reuters.

I have a question for you, Mr. Boorman. You've been around the Fund a long time--

MR. BOORMAN: Not that long!

[Laughter.]

QUESTION: Maybe you could give us an idea of how feasible you think it is for this to actually become a reality, given opposition from your largest shareholder, the U.S., or, at the very least, a preference for a more voluntary and flexible approach, opposition from NGOs, a desire from the Paris Club to stay out, a desire from the United Nations to have you have more conversations and not do anything that would enable, and a desire from debtor nations, like Mexico, to have nothing to do with it.

[Laughter.]

QUESTION: And Wall Street opposition, of course.

MR. BOORMAN: You say we face a challenge; is that it?

[Laughter.]

MR. BOORMAN: Let's take those three.

Stephane, I'd ask you if you could address the second question, perhaps.

Let me take the first because I think it's addressed at the Fund, but I'd be happy for anyone else on the panel to come in.

The way you put it, the IMF is trying to replace markets and decide if, and when, a country needs restructuring. Distinctly not. What we are trying to do is establish a framework, whereby, if a country decides and feels that its debt is unsustainable, it can activate that framework. Activating that framework does not involve a call to the IMF to come in and decide an economic policy plan and decide a restructuring program for the country. Rather, it triggers a negotiating process with the creditors.

The benefit of the SDRM is, as I said, if that negotiating process leads to a resolution, it binds in a minority creditors and protects the country under the resolution that's been agreed.

You asked whether or not there would be a grace period of sorts.

One thing that we really hope is that, as with domestic bankruptcy, the SDRM can be used as a kind of last resort. On any given day in New York City, you probably know better than I do, there are lots of creditors and debtors sitting around rooms trying to reconcile a problematic debt situation; the fact that they are under stress and under strain, the debtor can't make debt service payments on the schedule anticipated, and so forth, and they try to work something out, and very frequently they do. They stretch maturities, they may lower interest rates, they do all kinds of things.

They do that, though, in the shadow of bankruptcy. They know that if they do not succeed, there's another mechanism which takes over and, in fact, takes power away from them and puts it in the hands of the bankruptcy court judge. Something like that could develop here.

If you have SDRM, it may, in fact, be a spur to earlier debtor agreements for purely voluntary and informal, rather than SDRM-guided discussions between debtors and creditors.

Stephane?

MS. PALLEZ: On this question of the impact of SDRM on prices, I think that's the thrust of your question.

First, I would say that I'm not sure we can really draw lessons on the Paris Club experience to answer this question because, in my understanding, SDRM, again, is not something that would, in fact, be used frequently, at least we hope not. It is clearly something that is more an incentive or maybe a goal on the other negotiation processes and that, of course, could be used if those other processes do not work.

So that is a little bit different from what the Paris Club has actually been experiencing, not to say that Paris Club is a kind of normal mechanism that you should use, but the experience is that it has been quite frequently, maybe too frequently by some countries. So, in this sense, of course, the comparison is a little bit difficult to make.

The second point on this is, of course, that I think that right now, well, there is some predictability in what the Paris Club is doing. There is a lot of predictability, of course, on HIPC because it is, the Paris Club treatment is driven by an international agreement of what it has to do, and I think there is some predictability, even if we're on a case-by-case, for other countries also.

So this is only one ingredient that, at this stage, is quite--well, I would hesitate to make an estimate because I don't know whether we could expect that kind of predictability from SDRM treatment.

Mostly on this question, a lot of people have been trying to ask this question that has been, of course, asked by our friends from emerging market countries, and the general answer is that they don't see why SDRM should provoke an increase in cost.

I think one of the arguments that I've been hearing is, of course, taking the comparison with what's happening at the national level with bankruptcy rules. It's not because you have bankruptcy laws and rules that the costs of debt are increasing for private countries. I mean, this analogy, of course, maybe has limits, but I think that's something that needs to be taken on board.

So I would say that SDRM certainly would discourage something that has been described by Ken Rogoff at this conference as overborrowing or overlending at high interest rates, with, of course, the idea that the international community would bail you out in the end. I expect that it would do that, but I don't think that there is, again, an obvious reason why it would increase costs on the country.

Maybe one word about the Paris Club, because I think there is still some ambiguity about Paris Club and SDRM.

First, the reason why I'm not able to be completely blunt about this is that there is not an official position of the Paris Club. So I am talking here, trying to give you a sense of what my sense is of where it could go, but there is no official position, and that is of course to be specified.

Second, as Jack Boorman was saying, being out of the formal mechanism does not mean at all for Paris Club creditors. This is quite clear that they would be excluded from the restructuring process.

So, again, one thing is to ask whether we are entering the formal process of SDRM, which is quite different from what the Paris Club is doing because Paris Club is an informal club and not a formal organization. Another thing is to say that it would be protected for that. It would not be protected for that. I think it would do its share.

And to maybe answer also to something else that has been said, I think Paris Club has been, along the years, since it has been created, been adapted to various situations, quite different situations. It has now entered into those HIPC treatments, and I think if it would, again, if SDRM was in place, Paris Club would be, as usual, a pragmatic club that would adapt to this new situation. Again, I think that has a lot of interest for it because I think a more organized creditor community is something that we certainly would value.

Thank you.

MR. BOORMAN: Thank you.

On the issue of spreads, just to follow up on that, there's a lot of academic work. I shouldn't say there's a lot. There is some academic work on this and some work in the Research Department here at the Fund.

No one who has looked at this issue - and they can look at it because there are already instruments out there under English law that have collective action clauses in them, and you can compare them with what's paid on instruments issued in New York, for example, with no collective action clauses; and there are lots of bonds out there. So there's a very large data sample that you can play off in this work.

No one has been able to find an effect of the introduction of collective action clauses in increasing spreads. At the same time, no one has been able to find definitive evidence suggesting it reduces cost. You get results which are not very robust on both sides. Perhaps the best work is by Barry Eichengreen, and what his work shows is that for higher credit-risk countries, it seems that, in fact, the insertion of collective action clauses can reduce spreads, but that they may well go up for lower credit-rated countries. But the issue is out.

I would only add to that since the issue is out, I find it odd, disingenuous--I'm not quite sure what the right word is--that the private sector seems to be going around to emerging market countries and trying to scare the hell out of them about the fact that either the use of collective action clauses or the SDRM will lead to an increase in spreads, when, in fact, there is no evidence to that effect, no real credible evidence out there.

On the very interesting question about the feasibility of SDRM, in light of, first, the opposition from the United States. Well, the United States is one of, indeed, the largest, shareholder of the IMF. It is one of the members that asked the management and staff of the Institution to come up with a very specific proposal for SDRM by the time of the spring meetings, which is what this conference is all about. The U.S.,very specifically, has called for a continued discussion of both of these possibilities, the use of more elaborate collective action clauses, as proposed by John Taylor, and also the SDRM.

John Taylor, in a speech last October at the Cato Institute in New York, said very clearly that they wanted both of these approaches to continue to be investigated, and after further deliberation, further discussion, maybe some experience with collective action clauses, to make a decision at some point as to what represented the best public policy. So I wouldn't necessarily interpret the U.S. as having, by any means, a definitive position on this.

In terms of the opposition of the NGOs, I confess absolute surprise at the position of the NGOs. I thought if there was ever an initiative that the IMF came up with that the NGOs could buy into, it was this one.

[Laughter.]

MR. BOORMAN: There's a paper on the website of a presentation that I gave in response to a presentation by Caritas International, where they list the weaknesses and so forth of the SDRM. I would commend that to you because I remain surprised by this opposition.

The Paris Club wants to stay out? Well, that's not the case. The Paris Club doesn't have an official position right now, but this issue of staying in or staying out should not be interpreted as a matter of supporting or not supporting SDRM. It's just, as I said before, whether you do the Paris Club restructuring under the umbrella of the SDRM, per se, or whether you do it under their more familiar procedures in parallel. Whichever would be done, it would be in full consultation, I believe, with what would be going on in terms of the negotiations of the private creditors with the debtor.

The markets? We'll see. It doesn't surprise me, as opposed to the position vis-a-vis the NGOs, it doesn't surprise me that the markets are reacting the way they're reacting. They don't want any intrusion into their business. They prefer to be left alone.

I think there is a flaw in their arguments, though, if I may use my privilege as Chairman to state it. There are a lot of presentations in which the private sector says that they can find solutions to these crisis cases of unsustainable debt; i.e., they can find a resolution to a given country's debt problem. They'll say that "we did Ecuador". They'll say that, if the Argentine authorities begin to talk seriously, "we can do it in Argentina".

I would say, even if they can, that does not address the issue. Argentina should not have been put into the situation it has been put in. We could argue about who put it there, whether itself or the borrowing or the lending, whatever. But the point is, we want a system that prevents that kind of collapse, that gets to the issue earlier. And so, if the private markets can convince you that if the Argentine authorities come to them now, they can cut a deal, I think that's great.

And that will have implications as to the need for collective action clauses or the need for SDRM in one dimension, but it will not, in my view, be evidence that they succeed, because they needed to do something earlier. They needed something to save themselves value.

I firmly believe--I'm not speaking for the Fund--I firmly believe that if something like the SDRM was in place, and negotiations could have taken place in mid 2001, creditors probably would have gotten, pick a number out of the air, 75/80 cents on the dollar. You can pick another number out of the air about what is likely to be the recovery of claims by the creditors in Argentina now that Argentina is in the situation that it's in. There has been enormous loss of value for the creditors, not to speak of the pain and suffering of the people of Argentina.

I'm sorry this is a long answer to your question. The last point on it. While the debtor countries, and Mexico, are, for example, in opposition, I just hope that more and more discussion with Agustin will solve that problem.

[Laughter.]

MR. BOORMAN: But I'd better give him the floor after that.

MR. CARSTENS: I want to say something, and it has to do with the previous discussion, and that is, is there any room to suspect that this can, as a matter of fact, affect the price of access to capital markets, and Jack has noted that creditors are going around scaring us.

I mean, I don't think that we need that to happen. I think it has been a serious debate among creditors and debtors and also with you. We won't get scared for, you know, just a senior Wall Street person. It is because of arguments[?].

And the main reason we are concerned, and this is an issue that in this seminar it is a question that was posed on your lawyers, but it was told that it was a gatekeeper problem. It is a voluntary approach. The country can trigger the mechanism, and within the year it will be able to see what will happen, and [?] is an initial declaration of a default.

And something that has, in a way, the perception, and we also discussed about perceptions, but the perception is that the Fund is being more tolerant on defaults, and that is something that the market has incorporated into its pricing. If this were to happen, obviously, we don't have evidence of this because the [?] is not there.

But I would say that what is universally shared, and I guess your economists can attest to that, is that if there is an event where the probability of default can increase, the cost of that debt will increase [?] the price of the debt will go down.

We have a problem there, and your own lawyer, Mr. Hagan said when he was posed with this question, this has been a very difficult issue. It is something we have to work on. So does this mean that this means that these SDRMs doesn't have a hope to work? No. Does it mean that we have a big challenge? I would say, yes.

So I think that there is concrete reason to at least express some doubts of the mechanism. I think that the expression that the people on Wall Street have made or in London--because it is not only people from Wall Street, but from all emerging markets, you know--it has been that this poses some serious questions and questions that the mechanism still doesn't address and that we will have to work towards solving them and, if not, to find different ways to address these issues.

Something that we forget is that debt renegotiation is not only Argentina. There have been many, many, many debt renegotiations and many that have been very, very successful, and that there are certain things that can be learned from those processes, and to develop codes of conduct and so on can be developed to apply in the future.

So the issue is really if that particular feature of the SDRM can be addressed in a more constructive way. I think that points the finger at something you have to work on, and it should be taken seriously.

Thank you.

MR. BOORMAN: Your first point is a fair point. I think we do need to do something to overcome this perception that somehow or another there is a hidden agenda behind the SDRM, which there is not.

Ann?

MR. PETTIFOR: I just want to say Mr. Carstens today raised the analogy of prenuptial agreements, and the problem with prenuptial agreements is that the marriage might not happen. The truth of the matter is that prenuptial agreements take place in the context of the divorce law, and I really think that it is really wrong, and here I am really with the Fund on this; that to suggest the existence of a framework makes a prenuptial agreement impossible, it seems to me disingenuous. I think Jack is right about that.

I also want to say that the experience in the private sector is that a proper restructuring of the debt makes corporations more credit worthy, not less credit worthy. Part of our complaint, and I'd like to refer to what Ms. Pallez said about the way countries keep coming back to the Paris Club. Our complaint is that what's wrong with the system is because not sufficient debt is written off, countries keep coming back, and that should not need to happen. We should need to take a decision at one stage which makes a country sustainable.

But I really want to come back to Jack's point because there's been a lot of misunderstanding here, and we, in the NGO community, feel a little hurt that our role in promoting this idea is not recognized. We believe that we actually put this on the agenda back in '94-'95. That's how much we support it, Jack. I want to say that here wholeheartedly. We very much support what the Fund is doing.

And when we read Ms. Krueger's speech, we were absolutely delighted. Indeed, it wasn't Ms. Krueger. It was when we heard Paul O'Neill, in the Senate Banking Committee, and then the Finance Ministers, and the Bank of Canada, and the Bank of England produced a paper for the G7 Finance Ministers, that we got really excited, and we are very much behind this.

I think it's wrong--indeed, it's disingenuous, Jack--of you to say that we do not support this because we do, and we want recognition for that. We do not agree--

[Laughter.]

MS. PETTIFOR: We do not agree with the role that the Fund has allocated to itself in the framework because we don't believe it is a framework either of justice or a framework that will guarantee sustainability.

For those very, very serious reasons, we believe the Fund has to play a crucial role in this process. And you know I have put my head on the block with the NGO movement, I have damaged my "street credentials" by insisting that the Fund plays a crucial role in this process, but not the role of judge and jury.

The Fund is a witness, the Fund is a creditor, the Fund is a representative of other creditors, and the Fund has a really important role, as far as information is concerned, but it cannot have the pivotal role, and that's the disagreement that we have. And if we are not allowed to disagree with you, but then are told that actually we don't support this proposal, that isn't fair.

We do support it, and we very much support the work that you are doing it, and we welcome it.

MR. BOORMAN: I hope I haven't been unfair. This has been a good discussion, and I think everybody in the audience can decide for themselves who seems to support what.

[Laughter.]

MR. BOORMAN: It's now 7:16, and the rent is going up after 7 o'clock, so may I just say thank you--sorry. There's one more word from Barry Herman.

MR. HERMAN: Thank you. I just wanted to make a short comment.

I wanted to reiterate a point about information and also about mediation. The thing about information is that, and it pertains to Argentina, too, a number of people, in the summer of 2001, knew what was happening and what was likely in Argentina, and they sold out their positions. And the people who didn't have the information are the ones who still hold Argentine paper, largely. So that's a general issue about confidence, number one.

Number two, the second issue about communication between debtor and creditors, is what Jack mentioned about not having to go bankrupt, working out through the difficulties.

But the final point about mediation is that really the only solution that will effectively work is to take all of the pieces together. And that's why I said this thing about mediation, because it's the characteristics and the dimensions of the standby agreement, the financing provided by the IFIs or new money provided by private creditors, and the debt reduction, and the Paris Club, all of this has to fit together, and there is nothing in the mechanisms now to bring it together. There are iterations, and maybe they work and maybe they don't. History is that IMF programs have generally been underfunded, historically, at least a number of people conclude that.

Also, sometimes a mediator could help when there are difficulties in communication among those parties who have to talk. I don't know how this will work with Argentina, for example, and I'm only speaking for myself, but if Jimmy Carter had some free time, I'd say, you know, take a hike down to Buenos Aires.

Thank you.

MR. BOORMAN: Thank you very much, Barry.

Thank you all for coming. The only thing I will predict with great certainty is that there will be more of these discussions.

[Applause.]

[Whereupon, the proceedings were concluded.]