Prolonged Use and Conditionality Failure: Investigating IMF Responsibility

Abstract

Since the 1970s, prolonged use of resources by the IMF has consistently expanded, among both low-and middle-income countries. Overall, this phenomenon suggests a lack of effectiveness of Fund supported programmes. In the literature conditional lending failure has been explained by looking both at the characteristics of the borrowing countries (demand-side factors) and at the possible influence of IMF specific interests (supply-side factors). Among the latter it has been suggested that noncompliance with conditionality might be attributed to the lack of credibility of the IMF threat of interrupting financial assistance in case of policy slippages. In this paper we critically review this literature and we propose a novel explanation, according to which it is the repeated nature of the IMF involvement, together with the fact that the Fund acts simultaneously as a lender and as a monitor (and as an advisor) of economic reforms, that weakens the credibility of the IMF threat. Specifically, we argue that …/

Read my lips: The role of information transmission in multilateral reform design

“…21 This is a strong assumption. We are assuming that when the IMF chooses and monitors the adjustment policies, its monitoring technology is fully efficient, which is at odds with reality (e.g., Marchesi and Sabani, 2007b). What is actually crucial for the model however, is the fact that monitoring the policy actions reduces the bias compared to when the IMF simply monitors the final outcomes, which seems quite plausible.…”

Read My Lips: The Role of Information Transmission in Multilateral Reform Design

“…19 Moreover, it is possible to show that there exists a finite upper bound N(B, P ) on the number of sub-intervals of the equilibrium partitions and that there exists at least one equilibrium for each partition from N = 1 (uninformative equilibrium) to N = N(B, P ) (most informative equilibrium). Sabani, 2007b). However, what is actually crucial for the model is the fact that monitoring the policy actions reduces the bias with respect to the case in which the IMF simply monitors the final outcomes, which seems quite plausible.…”

“…According to the recent results in Dreher and Jensen (2007), e.g., countries voting in line with the U.S. in the UNGA receive IMF programs with fewer conditions. 30 We also control for disbursements of new IMF loans (as a share of GDP) which might arguably be related to the number of conditions (and the variables of interest) either. 31 As described above, the number of quarters a specific program is in effect is also controlled for.…”

Does membership in international organizations increase governments’ credibility? Testing the effects of delegating powers

“…This, in turn, leads to higher utility levels for both the governed and the governing because higher (aggregate) income also means increased tax revenue. The credibility of 1 As notable exceptions, Marchesi and Thomas (1999) and Marchesi and Sabani (2007) analyze "delegated monitoring" to the International Monetary Fund. 2 The decision whether to delegate domestically or internationally has been analyzed by Voigt and Salzberger (2002); Tallberg (2002) deals with the decision to delegate to a supranational organization, namely the EU.…”

“…This can have the informal effects just discussed even if the government does not abide by the court decision. 7 See Marchesi and Sabani (2007) for a detailed discussion regarding compliance with program conditions of the International Monetary Fund. See also Vreeland (2006Vreeland ( , 2007.…”