The situation becomes more complicated when it involves a large number of private-sector
debtors, rather than a sovereign debtor, as in the East Asian economies. The firm-level
bankruptcy model applied on a case-by-case basis may be both impractical and too time
consuming to help quickly resolve a financial panic. A mechanism could be developed to impose
a generalized standstill on a country's debt servicing obligations, in tandem with bringing together
debtors and creditors for collective rollovers and debt renegotiation. The Korean example shows
that this can be arranged quickly, at least for commercial bank debtors, when the international
community (in this case, the IMF and the US Treasury) provide a forceful impetus. Ideally, new
financing should be made available, mainly from private sector sources, as is the case with
bankruptcy proceedings. A case can be made for public sector involvement (certainly to facilitate
the proceedings, and perhaps to contribute to new financing) in the context of widespread debt
difficulties by commercial banks, since bank failures could threaten the entire payments system.
Moreover, financial information for banks is generally readily available since banks must regularly
report to the central bank.
The situation becomes more complicated when it involves a large number of private-sectordebtors, rather than a sovereign debtor, as in the East Asian economies. The firm-levelbankruptcy model applied on a case-by-case basis may be both impractical and too timeconsuming to help quickly resolve a financial panic. A mechanism could be developed to imposea generalized standstill on a country's debt servicing obligations, in tandem with bringing togetherdebtors and creditors for collective rollovers and debt renegotiation. The Korean example showsthat this can be arranged quickly, at least for commercial bank debtors, when the internationalcommunity (in this case, the IMF and the US Treasury) provide a forceful impetus. Ideally, newfinancing should be made available, mainly from private sector sources, as is the case withbankruptcy proceedings. A case can be made for public sector involvement (certainly to facilitatethe proceedings, and perhaps to contribute to new financing) in the context of widespread debtdifficulties by commercial banks, since bank failures could threaten the entire payments system.Moreover, financial information for banks is generally readily available since banks must regularlyreport to the central bank.
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