Mr K hler, meanwhile, has made it clear that co-operation between the IMF and the private capital markets means the latter sharing more responsibilities as well as privileges. IMF officials argue that progress is being made on the controversial issue of baling in the private sector on resolution of financial crises, and that considerable advances have been made since the Mexico crisis in 1995, when virtually all private creditors were bailed out by the use of official funds. The elements of the framework for handling these issues has been put out already and the private sector is becoming aware that they they will be called on to play a role in resolving crises, says an official. We have seen cases where bonds have been exchanged and rescheduled whereas two years ago people said this was impossible and that litigation would be a problem hindering exchange of bonds. Part of the problem is that any crisis has elements that are different from any other.
Countries differ in terms of where they are in the policy mix, in terms of debt profiles.
So it is very hard and counter-productive to lay down a set of rules. There has to be flexibility to handle a crisis as it comes along. The IIF, along with some European governments, is pressing for specific rules on how to resolve financial crises in terms of the claims of different creditor claims. There are good reasons why we should not lay down specific rules for how to handle one of these crises because the market reaction will depend on the different things they see coming along. We do not want to be in a position where the market moves to forestall certain outcomes.