Imf-Supported Programs and Crisis Prevention: An Analytical Framework

Unconditional IMF Financial Support and Investor Moral Hazard

“…Further calibration results (not reported) show, however, that for 1.0 σ = , the reduction in the crisis probability under a full bailout increases sharply to 10 percentage points from less than 3 percentage points if µ is reduced from 0.75 to 0.5. This result implies that the IMF can play a more effective role in crisis prevention if the country's economic fundamentals are weaker, an implication broadly in line with the theoretical predictions of Kim (2006) and the empirical findings of Bordo, Mody and Oomes (2004) and Ramakrishnan and Zalduendo (2006).…”

“…Indeed, it cannot be ruled out that the short-term premium rises as the size of IMF lending increases under a partial bailout. 13 12 This reasoning is not inconsistent with the theoretical prediction of Kim (2006) that unconditional IMF lending, unless very large, would not be effective in reducing the likelihood of a liquidity crisis. In his model, the country's economic fundamental is affected by unconditional IMF lending because it is broadly defined to include policy adjustment.…”

A Theory of International Crisis Lending and IMF Conditionality

“…Some are based on the traditional approach of modeling of coordination failures in terms of multiple equilibria (Sachs, 1984(Sachs, , 1995Zettelmeyer, 2000;Jeanne and Wyplosz, 2001;Jeanne and Zettelmeyer, 2002). In more recent models, this modeling strategy is replaced by the "global games" approach, in which there is a unique equilibrium which may or may not involve a run on reserves, and in which the probability of a run depends on the available liquidity (Rochet andVives, 2004, Morris andShin, 2006;Corsetti, Guimarães and Roubini, 2006;Kim, 2006Kim, , 2007. It is possible to introduce an effort variable in those models and study the impact of IMF lending on policy incentives.…”

The Impact of IMF-Supported Programs on FDI in Low-income Countries

“…Recent empirical work underscores the importance of institutional quality and good governance as important factors in driving FDI inflows (See Al-Sadig, 2009).6 See for exampleHajivassilious (1987);Killick, Malik and Manuel (1992);Rodrick (1996);Marchesi and Thomas (1999);Marchesi (2001);Benelli (2003);Mody and Saravia (2003);Bordo et al (2004);Bird and Rowlands (1997, 2007;Kim (2006);Eichengreen et al, (2005),Eichengreen et al, (2006),Arabaci and Ecer (2014);Cottarelli and Gianini (2002); andEdwards (2005).7 The Enhanced Structural Adjustment Facility (ESAF) was established in 1987, which brought stricter conditionality to the IMF's concessional financing and offered higher access under three-year arrangements. In 1999, The ESAF facility was renamed as the Poverty Reduction and Growth Facility (PRGF), with a focus on reducing poverty and strengthening growth on the basis of country-owned poverty reduction strategy.…”