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IMF changes lending rules to speed up debt restructuring

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The International Monetary Fund’s executive board voted to reform its process of supporting debt restructurings by allowing programs to move ahead despite holdout creditors.

A major hurdle for those approaches has been receiving “financing assurances” from creditors, which are key to unlocking IMF aid. (AP)
A major hurdle for those approaches has been receiving “financing assurances” from creditors, which are key to unlocking IMF aid. (AP)

The board on April 9 approved reforms in five policy areas “which should ensure a smoother and speedier process in the future,” the fund said in a statement Tuesday.

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The changes come amid mounting frustration with the pace of several workouts being pursued under the so-called Common Framework, a Group of 20-endorsed program of debt treatment for poor countries.

A major hurdle for those approaches has been receiving “financing assurances” from creditors, which are key to unlocking IMF aid.

“A number of recent IMF-supported programs involving debt restructurings experienced significant delays from the time staff level agreement was reached until the time the necessary official creditor assurances were provided to allow the approval of IMF financing,” it said in the statement.

China Scrutiny

China, the biggest creditor to emerging markets, has come under specific scrutiny due to its delays handling requests to restructure debt. Those have been blamed on the complexity of its lending landscape and lack of alignment with norms of more established creditors, such as the Paris Club.

“The idea is that in the future the IMF can lend earlier once a country’s creditors have agreed to negotiations over the restructuring of official debt,” said Martin Muhleisen, a former director at the IMF’s key strategy, policy and review department who’s now a fellow at the Atlantic Council. “I see it primarily as an attempt from the fund to accommodate China’s internal processes in a responsible way, rather than leaving countries like Zambia in limbo for several years.”

The IMF has been looking to shorten the time between when a country reaches agreement with fund staff and when it secures the creditor assurances needed for the board to approve financing. While that wait has been reduced from nine months for Zambia, to six months for Sri Lanka, and five months for Ghana, the fund has said that improvement is still needed.

Managing Director Kristalina Georgieva said in an interview at the IMF annual meetings in Morocco last October that she wants to reduce the lapse to just two to three months.

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