Catalyzing Private Capital Flows: Do Imf-Supported Programs Work as Commitment Devices?
38 Pages Posted: 29 Jan 2006
Date Written: May 2003
Abstract
An objective of IMF-supported programs is to help countries improve their access to international capital markets. In this paper, we examine the issue whether IMF-supported programs influence the ability of developing country issuers to tap international bond markets and whether they improve spreads paid on the bonds issued. We find that IMF-supported programs do not provide a uniformly favorable signaling effect - that is, the mere existence of a program supported by the IMF does not act as a strong seal of good housekeeping. Instead, the evidence is most consistent with a positive effect of IMF-supported programs when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the IMF-supported program matters, but the credibility of a joint commitment by the country and the IMF appears to be critical.
Keywords: IMF programs, signaling, capital market access
JEL Classification: F22, F33, F34
Suggested Citation: Suggested Citation
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