IFR IMF/World Bank Report 2018
If there is one thing that characterises both the International Monetary Fund and the World Bank, it is, by their very nature, their internationalism. Their results over their 70-odd-year histories have been achieved through collaboration – the greater the collaboration, the better the result.
And this remains central to the institutions’ activities, as exemplified by their respective mission statements: “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth , and reduce poverty around the world” in the case of the former; and “to reduce poverty, and improve living standards by promoting sustainable growth and investment in people” for the latter.
The path towards such worthy aspirations is rarely without hurdles, however, and some would-be beneficiaries find themselves drawn towards alternative solutions.
This can be cause for concern to the international organisations, with IMF managing director Christine Lagarde saying at a conference at the Fund’s Washington headquarters in early September that the high debt levels low-income countries have built up through non-traditional sources could complicate any debt restructuring.
She said there needed to be better collaboration to prepare for restructuring cases that involve non-traditional lenders and that building trust in sovereign borrowers is now more important than ever.
China, in particular, has become a major provider of credit to such countries, but it is not a member of the Paris Club of bilateral lenders, which has developed guidelines on how to restructure any such debts. It is the biggest single creditor of Venezuela, for example.
Borrowing from non-Paris Club lenders also means that creditor coordination will likely become more complicated, said Lagarde, not to mention more expensive and for shorter tenors.
That is not to say it will not or should not take place, however, just that cooperation and teamwork play an intrinsic role in successful outcomes.
The other side of this coin was demonstrated in Mozambique in 2016, when the sovereign was unable to keep servicing its US$727m 2023 bonds after several sovereign-guaranteed loans were disclosed.
Indeed, predictions are difficult to make in an environment that remains unpredictable.
When investors piled into Argentina’s US$2.75bn Century bond in June last year, for example, few could have anticipated that just 12 months later the country would once again be calling on the IMF for financial help.
But there are positives, too, such as previous beneficiary Cyprus’ successful return to the bond market. Rumour also has it that Ukraine is waiting in the wings, though it is unlikely to issue the new bonds until after it has reached agreement with the IMF ona new standby deal to replace its current US$17.5bn assistance programme – a work in progress.
And then there’s Greece, of course; there always appears to be Greece. In June, it passed a major milestone on its journey of financial redemption, having successfully exited its rescue package and won praise for enacting painful reforms that should improve its finances in the long term. Talk now is all about when it might make a splash in the international public bond markets again.
But there is always some level of uncertainty; such is the way of the world. Turkey, for example, never seems far from the headlines, while what direction a post-election Pakistan might take remains to be seen.
Whatever the answer, be it an official or bilateral route, collaboration and communication are key. As Lagarde says, b y working together, both parties can ensure better disclosure, which reduces risk and increases accountability.