IMF Replans After Greek Failure

At the center of the plan that will soon be tabled in the IMF executive committee is the “timing” of debt rescheduling for problematic countries. The aim is to convince creditors to write off part of the money owed them in a timely fashion. The restructuring of the debt will be a precondition for financial aid from the IMF.

On its part, Berlin has said a flat no to the practice of debt reductions after last year's Greek debt “haircut.” As it stands, bioth the German chancellor and finance minister Schauble categorically emphasize on every occasion that there will no more4 haircuts for overdebted Eurozone countries.

As Handelsblatt notes the two main factors affecting the eurozone debt crisis are on a collision course, and this because as Hugh Bredencamp, deputy Strategy & Policy Director at the IMF, notes “restructuring is are either limited, or too late.”

According to Mr. Bredencamp, this practice not only hindered a resurgence for these countries, but also gave time to bond holders to get rid of them placing the burden on the shoulders of taxpayers. This according to the German newspaper is exactly what happened to Greece

It was the “bitter experience of reducing the Greek debt in February 2012” was the impetus to order a re-examination of the practice that was followed.

As mentioned the central theme of the new plan the IMF is formulating is rooted in the idea that anyone wishing the support of the IMF in future will have to expect that the fund will demand a cutback on debt from private investors. The article also reiterates a statement by alternate deputy director David Lipton, made during the IMF fall conference that “private creditors would have to not jump ship during the process of adjustment of overdebted countries.”

The new IMF proposals will deal with managing new problematic cases that will arise, and not existing cases. The plan is expected to be unveiled officially in June 2014, despite the opposition of Berlin.

Handelsblatt does not exclude the possibility that chancellor Merkel may ask president Obama for help in deterring the IMF.