A Modest Proposal: Securitizing Multinational LDC Debt

Recent problems with the debt of less developed countries (LDCs) suggest the need for fresh approaches. In particular, the U.S. Congress has shown increasing reluctance to fund International Monetary Fund (IMF) rescues, suggesting the erosion of political support for the existing structural arrangements for LDC debt workouts. In 1997, former Secretary of the Treasury, William E. Simon remarked that “[t]he House and Senate now have a golden opportunity to force the long overdue elimination of the International Monetary Fund (IMF). There is no longer any reason to burden taxpayers with the expense of this outmoded institution.” A year later, during the 1998 debate on an $18 billion funding request, House Majority leader Dick Armey stated, “I am far from convinced that we should provide any new resources for the IMF.” Regardless of one’s position in this debate, the intended role of the IMF is an important issue. In this Chicago Fed Letter, the author explains how a recent financial innovation, the securitization trust, could become an alternative mechanism for handling LDC financing needs.