Krueger v. Taylor

["Ian Murray" <seamus2001@xxxxxxxxx>]

IMF Reform Plan Makes Comeback
U.S. Eases Stand on 'Bankruptcy' Idea

By Paul Blustein
Washington Post Staff Writer
Tuesday, April 9, 2002; Page E04


The International Monetary Fund's proposed "bankruptcy" procedure for
troubled countries came back from the dead yesterday -- thanks to the
U.S. Treasury, which last week appeared to have killed the idea.

The IMF should continue developing its proposal, said Randal Quarles,
assistant Treasury secretary for international affairs, because although
the IMF's plan would take much longer to implement than a different
approach favored by Treasury officials, "We support the fund's work on
their approach as well."

Those words contrasted with comments made last Tuesday by Quarles's boss,
Treasury Undersecretary John Taylor, who seemed to dismiss the IMF
proposal by referring to it as an "academic" exercise and emphasizing the
urgency of advancing the Treasury plan.

The latest twist in the Treasury position could help bridge an unusually
public rift between the IMF and its dominant shareholder, the U.S.
government, over one of the thorniest issues in the global economy: how
to rewrite the rules of international finance to contain crises like the
ones that struck emerging markets in Asia and Latin America in recent
years.

Last fall, the IMF and the Treasury appeared to have similar views.
Treasury Secretary Paul H. O'Neill told a congressional hearing that he
had talked with top fund officials about an "international bankruptcy
law," which he hoped would offer a better approach for resolving crises
than multibillion-dollar IMF bailout loans. In November, IMF Deputy
Managing Director Anne O. Krueger advanced a proposal under which the
fund would give countries protection from creditors of the sort companies
get under the U.S. bankruptcy code -- a radical move that would require a
change in the IMF's charter.

But Treasury officials later hinted they were uncomfortable with
Krueger's plan and that they preferred an alternative, known as
"collective action clauses," in which countries and their creditors would
agree on new contracts making it easier to restructure burdensome debts.

The disparity in views spilled into the open last week at a conference on
the issue, at which Krueger presented a modified version of her plan,
followed the next day by Taylor's speech calling for the use of
collective action clauses.

When asked whether he was suggesting it was no longer worthwhile to
consider the IMF plan, Taylor said that as a former professor, he
abhorred the idea of stifling academic research. But he also said the
debate over various options had gone on too long, asserting that the time
had come to induce countries and creditors to adopt collective action
clauses.

"My message is, we should get on with it," he said.

The dismissive tone of those remarks shocked some IMF officials and drew
criticism from some commentators who favor an international bankruptcy
mechanism. But Treasury officials maintained yesterday that they had
never meant to convey such a negative stance.

Quarles, who was sworn in last week as assistant secretary, was brought
to the department's press room to speak with wire service reporters -- a
tradition for newly inducted Treasury officials -- and when asked about
the issue, he said there had been a misunderstanding.

"I was a little surprised at the reaction some had" to Taylor's speech,
Quarles said in a telephone interview. "It was his intention to be
encouraging.

"The view we've always had is that the two approaches are complementary;
[they] aren't exclusive of one another," Quarles said. "The [Treasury]
approach is easier to start up quickly, while there's obviously a longer
ramp-up time on the [IMF's] approach.

The IMF declined to comment.