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New IMF Loan Rules Stress Importance of Minimizing Default Cases

© AFP 2023 / MANDEL NGAN The seal of the International Monetary Fund is seen on a headquarters building in Washington
The seal of the International Monetary Fund is seen on a headquarters building in Washington - Sputnik International
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Defaulting debtors will be able to receive loans from the International Monetary Fund (IMF) in cases of urgent situations, according to a press release issued by the IMF.

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WASHINGTON (Sputnik) — The number of defaults on obligations to bilateral creditors should stay at its minimum due to importance of provided loans to the programs supported by the International Monetary Fund (IMF), according to a press release issued by the IMF on Thursday.

“Directors highlighted that the financing that official bilateral creditors provide during crises is often critical for the success of Fund-supported programs,” the release said. “They emphasized, therefore, the importance of minimizing instances of arrears to official bilateral creditors.”

Defaulting debtors will be able to receive loans from the IMF without a consensus at the Paris Club of creditor nations under certain circumstances.

“In circumstances where an adequately representative agreement has not been reached through the Paris Club, the Fund would consider lending into arrears owed to an official bilateral creditor only in circumscribed circumstances,” according to the release.

Defaulting debtors also will be able to receive loans from the International Monetary Fund (IMF) in cases of urgent situations.

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“There may be emergency situations, such as in the aftermath of a natural disaster, where the extraordinary demands on the affected government are such that there is insufficient time for the debtor to undertake good faith efforts to reach agreement with its creditors,” the release stated.

Defaulting debtors will not be able to receive loans from the International Monetary Fund (IMF), if the majority of their creditors disagree to restructure the debt.

“This criterion [for loan provision] would normally not be satisfied where the creditor or group of creditors that has not reached agreement with the debtor accounts for an adequately representative share, i.e., a majority,” the IMF said.

The decision by the International Monetary Fund (IMF) to provide loans to defaulting debtors will be reviewed again in two to three years.

"[The IMF Board of] Directors agreed that, given the importance of this policy change, and depending on the complexity and number of cases that arise, the policy may need to be reviewed within a relatively short period, namely, two to three years," the release stated.

On December 8, the IMF Board of Directors voted to reform lending policies in order to allow countries to borrow money even if they default on their obligations to bilateral creditors.

IMF Communications Department Director Gerry Rice has previously stated that the reform is a part of a broader program related to reforming the Fund’s lending framework that governs sovereign debt restructuring.

The reform allows the IMF to proceed with Ukraine's bailout program even after a potential default by Kiev on its $3 billion Eurobond debt to Russia.

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