The Role of the IMF in Sovereign Debt Restructuring

The growing importance of international economic transactions for economic activity as a whole has given rise to an increasing number of proposals for arrangements to govern those international transactions. Many, if not most, of these proposals raise important policy issues, on which there is frequent disagreement among and within countries. Quite apart from political or policy controversy, however, many proposals for international economic arrangements are analytically flawed in one of several common ways. They may draw false analogies from domestic to international circumstances. They may elide the possibility that the accommodation of many national political and legal systems in a single international arrangement will force compromises that create more problems than they solve. They may be offered without sufficient attention to the institutional features of international arrangements that can distort or otherwise modify the intended outcomes of the arrangement. In this article I elaborate the last of these points in the specific context of proposals to give the International Monetary Fund ( IMF or Fund ) a greater role in sovereign debt restructuring. As has often been noted, the role of the IMF changed dramatically towards the end of its third decade in existence. Yet the fundamentally political nature of Fund operations has remained constant. The fact that the Fund has a highly professional and sizeable staff might have been expected to lend the organization a more technocratic character. Indeed, everything from the quality of its publications to the feel of its headquarters suggests just that. However, as Part II will show, both the history of its creation and the reality of its operations show that the IMF is, at its core, a political institution. In Part III, I show-by way of example rather than comprehensive analysis-how the political foundation of Fund governance affects a range of proposals to reform the process of sovereign debt restructuring. In many cases the IMF decision-making process may produce outcomes neither intended nor, in some instances, anticipated by reform proponents. The point here is not to endorse or reject any of these proposals but to underscore the perils of ignoring so critical an institutional characteristic. Concluding in Part IV, I suggest what the political foundation of IMF governance does, and does not, imply for reforming sovereign debt restructuring