LONDON. Sept 8: The International Monetary Fund faces growing flak over its policy on when to make private creditors shoulder the same burden as governments in sovereign debt- restructuring, such as Ecuador’s looming default, reports Reuters.

On Tuesday the Dutch Finance Ministry Joined a chorus of criticism from analysts over the IMF's case-by-case approach. saying it would penalise small countries by making their ability to raise funds on international markets more expensive.

The ministry said this would effectively create two distinct tiers of access to the international markets depending on a country's size and global influence.

"Small countries are thus disadvantaged regarding access to the international capital markets." said a document posted on the Dutch Finance Ministry's website late Tuesday.

The Dutch report said there was a risk that the IMF would adopt this "case-by-case" policy as its standard and instead urged an across-the-board approach to eliminate discrimination.

"The IMF staff are strongly supported by the US in this, which also thinks every crisis is unique and private sector involvement in the resolution of crisis can vary." it added.

The IMF's objective, part of broader attempts to create a new international financial architecture. is to stop private sector investors creating a bubble in a country's debt prices on the assumption the IMF will bail out the country if it looks set to

default on debt — as happened in Asia in 1997.

But the Dutch said the IMF approach and lack of standardised rules made it difficult for creditors to assess and price credit risk because they would not know the degree or chances of private sector involvement in any eventual bail-out.

This means the bigger countries. such as Russia or Brazil may be the only ones where investors could expect IMF involvement in a ball-out.

Analysts have also criticised the IMF’s approach to Ecuador along similar lines. Private creditors have already been included in Ukraine and Pakistan debt reschedulings, with Moldova and Romania expected to be next in line.

But the IMFs tacit blessing of a default on Ecuador $ 6 billion in Brady debt — the world's first — threatens to contaminate all emerging debt markets by setting a dangerous precedent. Brady bonds, which take their name from former US Treasury Secretary Nicholas Brady, are restructured commercial loans from the 1980s.

Michael Gavin, head of research at Warburg Dillon Read and a former lead economist at the Inter-American Development Bank, criticised the IMF's backing of an Ecuadorean Brady default as arbitrary.

He said the old debt Is subordinated to new: concocted in a vacuum, as the private sector has not been consulted: and ad hoc, as It is unrelated to a broader debt restructuring of some $ 500 million in Eurobonds and $3 billion in domestic debt.