IMF changes rules to speed debt revamps, avoid China delays

THE International Monetary Fund (IMF) has changed its process for supporting countries struggling with debt restructurings, a move aimed at avoiding recent delays widely blamed on China.

The IMF executive board on Apr 9 approved reforms in policy areas “which should ensure a smoother and speedier process in the future”, the fund said on Tuesday (Apr 16).

Fund officials estimate that the changes will reduce the time between staff agreement and board signoff on an IMF programme to as little as two months.

That compares with the nine months it took for Zambia, six months for Sri Lanka and five months for Ghana. Achieving that speed would also meet a publicly-stated goal of managing director Kristalina Georgieva.

Specifically, the change effectively changes requirements for so-called financing assurances from creditors, which are necessary to approve an IMF programme. Such assurances have been slow to emerge from China, where major debt restructurings need approval from the country’s State Council, one of the government’s highest decision-making bodies.

Under the new rules, the IMF would accept what it calls a “credible official creditor process” towards such assurances, rather than a finalised agreement, to avoid waiting for China’s process to play out.

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“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 such as Zambia in limbo for several years.”

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