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International monetary fund bailouts, moral hazard and private sector involvement

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  • Jiří Jonáš

Abstract

Since the mid-1990s, the IMF has provided large financial assistance to a number of member countries affected by serious financial and exchange rate crises. Because of the unprecedented size of these packages and possible negative side effects, the desirability of such assistance has become a hotly discussed issue. A consensus is now forming that official lending to country in crisis should not cease completely, but at the same time, official funds cannot be expected to fill in any existing financing gap. The article evaluates the risk of moral hazard connected with IMF lending. Although the substantial assistance inevitably influences the behavior and expectations of all players, there is little support for argument that lending created serious moral hazard. The role of the IMF conditionality as the traditional tool of reducing moral hazard is described in the circumstances of the new capital account developments.

Suggested Citation

  • Jiří Jonáš, 2002. "International monetary fund bailouts, moral hazard and private sector involvement," Prague Economic Papers, Prague University of Economics and Business, vol. 2002(1), pages 67-86.
    • Handle: RePEc:prg:jnlpep:v:2002:y:2002:i:1:id:189
    DOI: 10.18267/j.pep.189
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
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    3. Olivier Jeanne & Charles Wyplosz, 2003. "The International Lender of Last Resort. How Large Is Large Enough?," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 89-124, National Bureau of Economic Research, Inc.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    IMF; financial assistance; moral hazard; financial and exchange rate crisis;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid

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