Corporate bankruptcy law grew up as it became clear that market forces delivered losers as well as winners and that some orderly means was needed of dealing with the losers. In this way, bankruptcy law supports the market mechanism. The situation is no different in a sovereign context. A well-articulated framework for dealing with sovereign liquidity problems should reduce the inefficiencies and inequities of the current unstructured approach to standstills. It would support the international capital market mechanism. It would be no  7  BIS Review 70/2000  more likely to induce debtors to default than bankruptcy law is to induce corporate debtors to default. In neither case is default a soft option. We would of course hope and expect sovereign standstills to be the exception rather than the rule. But it is better to plan for all contingencies, and to articulate these plans, than have international public policy made on the hoof. In this respect, crisis-fighting shares many similarities with fire-fighting. Fire-prevention is ideal, but will never entirely prevent fires occurring. So it makes sense to have a fire-fighting plan, which everyone understands and abides by, to minimise the damage when fires do occur. Would standstills work? The issue of whether standstills should form a part of the official sector’s toolkit of responses remains under active debate. A number of arguments against the use of standstills have been made by policymakers, academics and the private sector. Let me try and articulate some of the concerns.
This recognition that it is neither practical nor desirable to see the IMF in a role of Lender of Last Resort has prompted considerable thinking about the nature of private sector involvement in crisis resolution and the modalities of sovereign payments suspensions or standstills. Payments suspensions are in some ways the obverse of recognising the limits on IMF lending. And, reflecting this, sovereign standstills litter history over the last two centuries: in Latin America in the 1820s; among the US states in the 1830s and 1840s; in Latin America again in the 1870s; among the majority of sovereign debtors in the 1930s; and in Latin America once again in the 1980s. All too often in the past, however, sovereign standstills have also been a recipe for chaos and confusion. The recent sovereign defaults in Russia, Indonesia and Ecuador are good cases in point. But looking back over history, it is clear that messy and protracted sovereign standstills are very much the rule rather than the exception. Historical experience with sovereign standstills probably looks quite a lot like corporate experience before insolvency rules were put in place, with the work-out process inefficient and inequitable. I will return to that corporate bankruptcy analogy later on. Against this backdrop, the key issues facing the official community seem to me to be twofold.