By Andrew Walker BBC economics correspondent at the IMF/World Bank spring meeting in Washington

Lenders are always worried about the risk of default

The International Monetary Fund (IMF) has suffered a major setback for its efforts to create a new system for resolving countries' debt crises.

IMF officials have been working on proposals for what has been called a country bankruptcy procedure, for nations whose debt payments to private creditors become unsustainable.

A meeting of the IMF's main ministerial policy making committee said that it is not feasible now to proceed with the idea.

Instead, the IMF is to do further work on ideas that originate in the private sector, and it is clear that what the IMF called the Sovereign Debt Restructuring Mechanism (SDRM) won't see the light of day in the near future.

But it is not necessarily buried for good.

No Treasury favour

The key blow came from the new United States Treasury Secretary, John Snow.

His predecessor Paul O'Neil seemed to support the IMF proposal. Mr Snow does not. And that, for now, is decisive.

So IMF officials have not given up all hope.

The basic idea was in some ways akin to the protection that struggling companies can get under chapter 11 of US Bankruptcy law - the IMF proposal is sometimes called a Sovereign Chapter 11.

A country whose debts become unsustainable would be able to negotiate with a new, more manageable financial arrangement.

Making a bad situation worse?

All creditors would have to accept any deal accepted by a large majority.

But the creditors could well end up losing money.

And there would be disincentives to discourage creditors suing for full payment while the negotiations were underway.

The SDRM had its origins in the idea that IMF emergency loans to countries with debt crises had the effect of saving private sector lenders from losing money - saving them from the consequences of their own misjudgements.

But the proposals had been sold more recently in terms of saving crisis-hit countries from having their economic pain aggravated by a long and messy debt default.

The scheme has failed to gain the political support it needs, in part because critics think the problems it is meant to address are exaggerated.

Alternative ideas

For the now, though, the emphasis will be on two other ideas.

One is called collective action clauses.

Debts involve contracts which can stipulate that all creditors have to be bound by a re-negotiation in the event of a crisis if a large majority of the creditors agree.

It is not a comprehensive solution and it only covers those loans which have such a clause, and at present there is hardly any developing country debt that does.

Mexico recently borrowed money in the financial markets under such terms, and many regard it as an important precedent.

The IMF is also working on the idea of a code of conduct to promote improved co-operation between lenders and debtors, an idea that originated in the private financial sector.

The approach to debt crises took an important turn in Washington last weekend.

The idea of something like a country bankruptcy system has at the very least been consigned to the deep-freeze for the foreseeable future.