Post by Sapphire Capital on Feb 20, 2009 8:33:43 GMT 4
A Theory of International Crisis Lending and IMF Conditionality
Olivier Jeanne
International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)
Jonathan Ostry
International Monetary Fund (IMF)
Jeromin Zettelmeyer
International Monetary Fund (IMF)
October 2008
IMF Working Paper No. 08/236
Abstract:
We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention efforts - "ex ante" conditionality.
papers.ssrn.com/sol3/Delivery.cfm/wp08236.pdf?abstractid=1316704&mirid=1
Olivier Jeanne
International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)
Jonathan Ostry
International Monetary Fund (IMF)
Jeromin Zettelmeyer
International Monetary Fund (IMF)
October 2008
IMF Working Paper No. 08/236
Abstract:
We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the return of private capital, and ensuring repayment to the IMF. Nonetheless, moral hazard can arise if there are crisis externalities across countries (contagion) or if country authorities discount crisis costs too much relative to the national social optimum, or both. Moral hazard can be avoided by making IMF lending conditional on crisis prevention efforts - "ex ante" conditionality.
papers.ssrn.com/sol3/Delivery.cfm/wp08236.pdf?abstractid=1316704&mirid=1