Marchesi, Silvia and Sabani, Laura (2005) IMF concern for reputation and conditional lending failure: theory and empirics. Financial Markets Group Discussion Papers (535). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
One possible explanation for the unsatisfactory implementation of IMF conditionality has been attributed to the lack of credibility of the IMF threat of interrupting financial assistance in case of non compliance with the negotiated conditions. In this paper we suggest that such lack of credibility might be due to the dual role played by the IMF which acts at the same time as a creditor and a monitor of economic reforms. We show that the IMF incentive to hide its surveillance failures, in order to preserve its reputation of being a good monitor, may actually distort its lending decisions towards greater laxity (relative to social optimum) in punishing non-compliance with economic reforms. We have empirically tested such theoretical result by supposing that larger departures from efficiency of the IMF lending rule are associated with a longer relationship between a country and the IMF. The longer this relationship, the stronger the IMF reputation will be affected in case it ultimately decides to stop lending. Specifically, we have empirically investigated whether IMF disbursements are affected by the IMF own share of debt, which is taken as a proxy for the duration of the relationship between the Fund and a country. Our empirical results show that a higher IMF debt share does increase IMF disbursements.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2005 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information N - Economic History > N2 - Financial Markets and Institutions |
| Date Deposited: | 29 Jul 2009 11:39 |
| Last Modified: | 13 Sep 2024 19:56 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24648 |
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