IMF's sovereign bankruptcy plan meets opposition

The International Monetary Fund's plan to set up a type of international bankruptcy court to help nations unable to pay their debts to restructure them was met by a wall of criticism Wednesday.

A conference held at the international lender's headquarters to discuss its plan was greeted with opposition from the emerging market nations.

The lender's most powerful shareholder, the United States, reiterated that it would prefer other options to be tried before the IMF's plan. The Paris Club of creditor nations said it has yet to come up with complete opinion of the plan.

While the conference produced some consensus on the need to do something to help nations in trouble fix problems caused by having unsustainable debts, there was little agreement on exactly what to do about it.

"There are concrete reasons at least to express some doubts about the mechanism," said Agustin Carstens, Mexico's deputy minister of finance and public credit of the IMF's plan. The IMF's proposal -- called the Sovereign Debt Restructuring Mechanism -- would give nations a framework to negotiate a debt restructuring with creditors and would also set up a panel of judges to arbitrate disputes in those talks.

The IMF hopes its plan will lead to simpler debt restructurings which would be more transparent and efficient than the current system, where rogue investors can delay restructurings by suing for full payment in the courts. Wall Street, wary of interference from a new bureaucracy, opposes the scheme, saying the use of specific clauses in bond contracts would be a simpler solution.

Indeed, Carstens said he shared some of Wall Street's concerns that the IMF's plan could increase the perception that more nations would default -- something that could increase the cost of issuing bonds for nations like Mexico.

Carstens said that the IMF's plan is, "Perceived as inviting debtors to unnecessarily declare defaults. That will increase the pricing of debts and make it more difficult for emerging markets to tap international markets."