The International Monetary Fund (IMF) and the Catalytic Effect: Do IMF Agreements Improve Access of Emerging Economies to International Financial Markets?

Abstract

1 Edwards (2005, p. 863) finds that 'the average state under a program experiences less of an outflow of portfolio investment compared to those that are not under a Fund program'.

Doing more with less: The catalytic function of IMF lending and the role of program size

“…A caveat associated with focussing on net flows is, however, that the required adjustment in the current account balance, which is a key objective of most IMF programs, by definition implies lower net capital inflows (at least for countries with flexible exchange rates). Some studies therefore focus on gross inflows or use bond spreads (Saravia and Mody (2003)) or the maturity structure of public debt (Arabaci and Ecer (2014)) as a proxy to measure investors' willingness to lend to program countries. Saravia and Mody (2003) conclude that there is a positive catalytic effect of IMF-supported programs when they are viewed as likely to induce policy reforms and when economic fundamentals have not deteriorated too much.…”

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

“…Findings on the impact of IMF loan size and conditionality also disagree (Chapman et al, 2017; Corsetti et al, 2003; Díaz-Cassou et al, 2006; Eichengreen & Mody, 2001; Mody & Saravia, 2006; Woo, 2013). One line of thought is that countries with “intermediate” economic fundamentals, such as foreign reserves and debt, are able to restore investors’ confidence (Eichengreen & Mody, 2001; Bird & Rowlands, 2002; Mody & Saravia, 2006; Arabaci & Ecer, 2014). This notion, however, provides little explanation for short-term within-country variation, as macroeconomic fundamentals tend to change slowly.…”

Conditionality and Design of IMF-supported Programmes

“…Mody and Saravia (2003) looked at new debt issues and found that country fundamentals do matter in determining the effects of IMF programmes: for countries with a very low level of reserves or a very high debt-to-GDP ratio, spreads were higher with a programme rather than without a programme. Arabaci and Ecer (2014) found that IMF arrangements are associated with an improvement in borrowers' access to international financial markets in terms of lengthened maturity; moreover, catalytic 27 A programme is defined as successful if the initial programme projections for net private capital flows are met or exceeded.…”