September 25, 2000
The International Monetary Fund and Paris Club of creditor nations are destabilising the poor economies they are supposed to help and effectively cutting them off from financial markets, bankers were told at a meeting on Friday. The Fund has stoked the ire of private bondholders by insisting their assets be included in any restructuring of debts owed by countries. One such nation was Ecuador, which defaulted on its debt and forced holders of Brady bonds to swallow a 40 percent cut in the value of their holdings, which already represented debt which had been restructured.
"It seems to me that the IMF and Paris Club have done a huge amount of harm to the second tier of emerging market countries," said Michael Atkin, director of sovereign risk at fund manager Puttnam, which has $400 billion of global investments. The IMF and Paris Club in turn argue that taxpayers' money cannot be used to in effect bail out private sector investors.
Spreads on the debt have ballooned out for some countries where the IMF has become involved and is believed to be urging that private sector debt be restructured as part of any official debt forgiveness. Countries such as Nigeria, Ukraine, and Pakistan have all been urged to restructure private debt, although Pakistan refused to go along with the IMF.
While spreads over US Treasuries on the benchmark JP Morgan Bond Index Plus (EMBI+) which measures a wide variety of debt have come in sharply this year to about 700 basis points, countries such as Nigeria trade way in excess of that.
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