Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

IMF Scales Down Plan For Debtors

WASHINGTON -- The International Monetary Fund, which is trying to forge a new approach to handling financial crises, has agreed to limit its role in a proposed "bankruptcy" procedure for countries overburdened with debt.

Anne Krueger, the IMF's deputy managing director, backed away from some of the most controversial elements of a proposal she made in November that would effectively give the IMF the power to grant financially strapped countries protection from creditors. Krueger maintained that the modifications did not fundamentally change the plan, but some analysts said that at first glance the original proposal appeared to have been watered down.

Even after modifying the initial plan, the IMF must still overcome misgivings by the White House, Krueger said.

Krueger's comments, in a speech and a conference call with reporters, underscored both the IMF's determination to establish new international rules aimed at quelling crises and lowering the obstacles it faces in doing so. The fund has been stung by criticism over the way it addressed crises in Asia, Russia and Latin America, where it granted huge loans that often failed to halt turmoil while bailing out some wealthy banks and investors.

The idea behind Krueger's November proposal was to create a procedure for giving crisis-stricken countries a means of halting panics and keeping investors from pulling their money out of the nation, which would give political leaders time to work out debts in an orderly fashion. Under the proposal, when a country had clearly reached the stage of being unable to pay its debts, the IMF could approve its request to declare a "standstill" -- a temporary suspension of payments -- on condition that the country was taking steps to put its economy on a sound footing.

The version Krueger outlined Monday retained much of the basic thrust of the original plan, but she bowed to complaints that the IMF should not assume too much control over how the standstill would work or how debts would be restructured.

Under the new plan, a country in financial distress could ask the IMF to "validate" a "stay" on its debt payments for a short period while creditors organize themselves. After that, a supermajority of creditors would have the right to decide whether to allow the stay to continue or accept a restructuring.