Compliance, defiance, and the dependency trap: International Monetary Fund program interruptions and their impact on capital markets

Reinsberg, Bernhard; Stubbs, Thomas; Kentikelenis, Alexander

doi:10.1111/rego.12422

Cited by 20 publications

(13 citation statements)

References 96 publications

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“…In contrast, SPCs include a wide range of reforms, ranging from appointing external panels on a certain issue to central bank reform, which may not be directly relevant to debt service. SPCs are also politically more contested and take longer to implement (Reinsberg et al, 2021).…”

Section: Resultsmentioning

confidence: 99%

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Who Is Credible? Government Popularity and the Catalytic Effect of IMF Lending

Shim

2022

Comparative Political Studies

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In this paper, I explain variations in international investors’ reactions to International Monetary Fund (IMF) programs. Investors react favorably if a borrowing government is credibly committed to implementing essential IMF conditionality. Instead of engaging complex information processing about economic reform, however, investors rely on a heuristic device to assess the borrower’s domestic political conditions. I argue that a borrowing government’s popularity is an important cue for investors to assess the prospect of an IMF program. Investors associate higher government popularity with better implementation of the program and react more favorably to more popular borrowers. Using annual data from up to 52 emerging market economies from 1998 to 2017, I find robust statistical evidence supporting these claims: an IMF program alone does not restore investor confidence. Rather, an IMF program carried out by a strong government does. My findings have important implications for the study of global financial governance and credible commitment.

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Section: Resultsmentioning

confidence: 99%

“…See, for example, Gehring and Lang (2020), Schneider and Tobin (2020), Stubbs et al (2020), Reinsberg et al (2021) and Nelson and Wallace (2017).…”

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confidence: 99%

Who Is Credible? Government Popularity and the Catalytic Effect of IMF Lending

Shim

2022

Comparative Political Studies

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“…Future research should carefully consider the role of moderating variables such as unemploymentwhich are themselves affected by IMF programs (Lloyd and Weissman, 2002;Ohanyan and Androniceanu, 2017). In addition, future research could investigate how IMF program interruptions and non-compliance with IMF policy conditionality (Reinsberg et al, 2021a(Reinsberg et al, , 2021b affect income inequality. To accomplish this, scholars could prefer our methodological approach, given its flexibility in addressing the issue of selection bias.…”

Section: Discussionmentioning

confidence: 99%

The effects of IMF programs on income inequality: a semi-parametric treatment effects approach

Chletsos

Σίντος

2022

IJDI

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Purpose This paper aims to provide new insights regarding the impact of International Monetary Fund (IMF) programs on income inequality. Design/methodology/approach The paper uses a novel methodological approach proposed by Acemoglu et al. (2019), using (1) the regression adjustment, (2) the inverse probability weighting and (3) the doubly robust estimator, which combines (1) and (2), and a sample of annual data for 135 developing countries over the time period 1970 to 2015. Findings The findings show that IMF programs are associated with greater income inequality for up to five years. By differentiating the effect of IMF programs, the authors find that only IMF non-concessional programs have a significant detrimental effect on income inequality, while IMF concessional programs do not have a consistent effect on income inequality. In addition, the authors find that only IMF programs with a higher number of conditions have a detrimental and statistically significant effect on income inequality, compared to IMF programs with a smaller number of conditions, where their effect on income inequality is found to be insignificant. Originality/value To the best of the authors’ knowledge, the analysis developed in this paper contributes to the existing literature by applying the most methodologically sound identification strategy, which does not rely on the linearity assumption, the selection of instruments or matching variables and additionally takes into account the selection bias related to IMF program participation.

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“…To be fair, compliance with IMF conditions is relatively low. Between 1980 and 2015, only 33% of all 763 loans were disbursed without interruption; the remaining 67% were suspended at least once—if not permanently—due to noncompliance (Reinsberg et al, 2021; see also Bird, 2001 and Stone, 2011). Noncompliance may be a function of low state capacity: some governments lack a trained bureaucracy capable of creating and maintaining transparent fiscal institutions.…”

Section: Imf Lending and Policy Conditionalitymentioning

confidence: 99%

“…First, there is a high rate of recidivism in lending: some countries are regular users of IMF credit, suggesting that this credit is not promoting the lasting economic recovery it aims to promote (Bird et al, 2004). Second, compliance with IMF‐mandated policy reforms—a condition for loan disbursement—is often mixed at best: between 1980 and 2015, 67% of all loans were suspended due to noncompliance (Reinsberg et al, 2021). Third, domestic leaders are typically unwilling to regulate the natural resource sector, because resource windfalls allow for short‐term increases in discretionary spending that can be used for political gain (Ross, 2015).…”

Section: Introductionmentioning

confidence: 99%

Examining the effect of IMF conditionality on natural resource policy

Goes

2022

Economics & Politics

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Can International Monetary Fund (IMF) lending improve natural resource governance in borrowing countries? While most IMF agreements mandate policy reforms in exchange for financial support, compliance with these reforms is mixed at best. The natural resource sector should be no exception. After all, resource windfalls enable short‐term increases in discretionary spending, and office‐seeking politicians are often unwilling to forgo this discretion by reforming the oil, gas, or mining sector. I investigate how and when borrowers go against their political interests and establish natural resource funds—a tool often promoted by the IMF—in the wake of a loan agreement. Using text analysis, statistical models, and qualitative evidence from natural resource policy and IMF conditionality for 74 countries between 1980 and 2019, I show that borrowers under an IMF agreement are more likely to create or regulate a resource fund, particularly if the agreement includes binding conditions that highlight the salience of natural resource reforms. This study contributes to extant research by proposing a new method to extract information from IMF conditions, by introducing a novel dataset on country‐level natural resource policy, and by identifying under what circumstances international reform efforts can help combat the resource curse.

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Compliance, defiance, and the dependency trap: International Monetary Fund program interruptions and their impact on capital markets

Cited by 20 publications

References 96 publications

Who Is Credible? Government Popularity and the Catalytic Effect of IMF Lending

Who Is Credible? Government Popularity and the Catalytic Effect of IMF Lending

The effects of IMF programs on income inequality: a semi-parametric treatment effects approach

Examining the effect of IMF conditionality on natural resource policy

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