Catalyzing Private Capital Flows: Do Imf-Supported Programs Work as Commitment Devices?

38 Pages Posted: 29 Jan 2006

See all articles by Ashoka Mody

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Diego Saravia

University of Maryland

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

Mody, Ashoka and Saravia, Diego, Catalyzing Private Capital Flows: Do Imf-Supported Programs Work as Commitment Devices? (May 2003). IMF Working Paper No. 03/100, Available at SSRN: https://ssrn.com/abstract=879176

Ashoka Mody (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

Diego Saravia

University of Maryland ( email )

College Park
College Park, MD 20742
United States

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