Imf Concern for Reputation and Conditional Lending Failure: Theory and Empirics
42 Pages Posted: 17 Jan 2006
Date Written: November 2005
Abstract
In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically,we show that the IMF desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982-2001, we find that a longer relationship does increase IMF disbursements.
Keywords: IMF programmes, conditionality, incomplete information, reputation, dynamic panel
JEL Classification: C23, D82, F34, N2
Suggested Citation: Suggested Citation
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