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eBook details

• Title: Do Sovereign Debtors Need a Bankruptcy Law?
• Author : The Cato Journal
• Release Date : January 22, 2003
• Genre: Politics & Current Events,Books,
• Pages : * pages
• Size : 251 KB

Description

The idea that there is a "gaping hole" in the architecture of the international financial system that should be filled by a universal bankruptcy tribunal is not credible. For centuries, sovereign debt defaults have been resolved without the benefit of bankruptcy laws. When a financial crisis exposes a sovereign debtor's bankruptcy, it seems wrongheaded to focus on resolving its dishonored obligations rather than expanding efforts on preventing debtors from accumulating excessive obligations. Implicit in the bankruptcy approach is an assumption that the financial crises that have taken place in emerging markets have been made worse by the difficulties debtor governments have faced when trying to attenuate the commitments they had made to their creditors. But in each of the crises following the Mexican devaluation of 1994, the International Monetary Fund has bailed out creditors, and, to the extent that debt restructuring was involved, that restructuring was not stymied. There has been so much criticism of the moral hazard created by that policy that in the future the IMF may restrain its penchant for bailouts. But even if it does so, its continued sponsorship of a universal bankruptcy law should be questioned. Why would such a law be a higher priority for the IMF than more effective oversight of the economic policies of emerging markets?

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