The IMF's SDRM—Simply Disastrous Rescheduling Management?

Abstract

AbstractThis chapter argues that that the IMF's sovereign debt restructuring mechanism (SDRM) is misguided in several ways. Most importantly, the SDRM proposal leaves the IMF itself in the position of having to make two crucial decisions: whether to endorse a stay of payments to creditors, and what amount of debt is “sustainable”, i.e., how much debt should be written off. This decision-making capacity creates a conflict of interest, as the IMF itself is almost always a creditor to countries experiencing debt crises. As an alternative to the IMF's SDRM, a mechanism modeled on Chapter 9 of the US bankruptcy code is proposed, which applies to municipalities and resolves some of the knotty problems of dealing with public (as compared with private) insolvency. This approach would rely on ad hoc panels formed by the debtor and creditor committees and therefore would not require that the IMF serve as arbitrator.