WASHINGTON: The International Monetary Fund is to draw up urgent proposals for a bankruptcy system that will provide crisis-hit countries such as Argentina with the protection currently offered to companies.

Fearful of a continued run of financial crises, the IMF has been given six months to come up with a blueprint that will provide countries with a mechanism for coping with debt defaults.

The proposals were put forward over the weekend at an IMF/World Bank meeting amid admissions by members that the recovery in the global economy had not taken hold as hoped a few months ago, and as concerns grow that Brazil may be the next country to be faced by a run on its financial markets.

Britain’s finance minister, Gordon Brown, said the past year, which has seen banks closed and rioting on the streets of Latin America, had made the case for developing a more consistent approach to dealing with financial meltdowns. The proposals would allow sovereign nations in effect to file for bankruptcy in an international court and restructure their debt loads.

The plans have met an angry response from Wall Street and London banks, which lend vast sums to Latin America and other parts of the developing world. Citigroup and JP Morgan Chase, two of the biggest lenders, have already written off millions of dollars in bad debts from the Argentina crisis this year.

US treasury secretary Paul O’Neill, whose support had wavered, endorsed the idea of sovereign debt restructuring.

Policymakers in some developing countries also opposed the proposals. They expressed fears that the potential of bankruptcy might scare off lenders and only precipitate further financial ills.

Horst Kohler, managing director of the IMF, described the bankruptcy option as a last resort.

Fifteen of the world’s richest countries have pledged an extra $1 billion in debt relief to help rescue poor nations hit by the collapse in global commodity prices.

James Wolfensohn, the president of the bank, said: “The highly indebted poor country initiative (HIPC) looks to be well taken care of. One of the things that came through was a new commitment to writing cheques.”

Aid agencies said that the extra money promised in Washington was welcome, but was not enough.—Dawn/The Guardian News Service.