-- [B] IMF sees "good progress" in developing bailing-in framework -- --IMF agrees that any bailing-in framework should be flexible --IMF: Bailing-in requires "exercise of considerable judgement" --IMF: The official sector has learned lessons on bailing-in --IMF stresses value of countries talking to private sector --IMF urges collective action clauses in intl bonds --IMF says that no category of private debt is senior --IMF to work on relative treatment of bondholders and Paris Club By Felix Salmon, BridgeNews New York--Sept. 19--The International Monetary Fund (IMF) said Tuesday that "good progress has been made in developing a framework for involving the private sector in forestalling and resolving financial crises," a process known as bailing-in. Such a framework "would need to be a flexible one, and the complex issues involved would require the exercise of considerable judgement," it said. * * * The comments were made in a paper written by Horst Koehler, chairman of the Executive Board of the IMF, following a Sept. 5 discussion by the Board. Koehler said that following recent experiences with bailing-in, lessons had been learned "by debtors, private creditors and the official sector." The IMF said it "emphasized the value to borrowing countries of establishing regular procedures for a dialogue with their private creditors." The paper also urged "the introduction of collective action clauses in international sovereign bonds." Collective action clauses are mechanisms whereby less than 100% of bondholders are needed to effect changes in debt repayments. The IMF said that both industrial and emerging-market members should use such clauses. The Fund also urged the use of contingent lines of credit. The IMF's contingent credit line progam is designed to be used by fiscally responsible countries whose access to international markets is temporarily cut off because of spillover effects from other markets. The IMF also set out a principle that "no one category of private debt should be regarded as inherently senior relative to others in a similar position." When Ecuador defaulted, for instance, the government made an attempt to distinguish first between collateralized and uncollateralized Brady bonds, and then between Brady bonds and eurobonds. In the event, all bonds were treated equally in the restructuring. The Fund said that further work was required in examining the relative treatment of bonholders and bilateral creditors, which included Paris Club claims, an issue known as comparability of treatment. The board considered other mechanisms, on which there was less unanimity. Some directors wanted a rules-based approach wich would force private sector involvement when a country reached a threshhold level of access to fund resources, while others worried that would hinder that country's resumption of access to international markets. Some directors also favored an amendment that would allow the Fund to provide a member with some protection against the risk of litigation through a temporary stay on creditor litigation. There was also disagreement on whether IMF support of standstills -- situations in which countries stop making scheduled debt repayments -- would increase or decrease countries' financing costs. No matter what the mechanism, however, the directors agreed that IMF operations "should, to the extent possible, limit moral hazard." The IMF said that the staff papers on which the discussions were based, called "Involving the Private Sector in the Resolution of Financial Crises -- Status Report," and "Standstills: Preliminary Considerations," would be posted on the IMF website (http://www.imf.org) shortly. End (Back) to felixsalmon.com