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IMF Reverses Policy on Lending into Official Arrears

posted by Mark Weidemaier

So the shoe has finally dropped. IMF policy has been not to lend to countries that have arrears to official creditors. I have long thought the IMF should (and would) depart from its policy in the case of Ukraine's debt to Russia, which was structured in a fairly transparent effort to capture the benefits of both private and official lending. Whether or not one approves of Russia's motives or techniques in structuring the loan, it seems clear to me that the IMF should not allow its policies to be held hostage in this case. 

News reports now indicate that the IMF has switched course. More details to follow, but it seems like this is a general shift in policy rather than (as Mitu Gulati and I suggested in the post linked above) a one-off exception applicable only to the Russian debt. The shift has been in the works for a while and was suggested in an IMF staff report in 2013. Still, it's a pretty big deal for IMF board members to approve. Official creditors generally like to have a veto over Fund decisions, even if they don't always like the consequences of the veto in particular cases.

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