International Monetary Fund lending continues to be criticized for possibly generating moral hazard in international financial markets. The empirical examination of this issue has focused exclusively on the potential distortions in the pricing of credit, in the form of lower spreads. To date no research has been conducted on the potential impact of IMF lending on the maturity composition of borrowing. This is a major omission because of the established relationship in the financial crises literature that shorter debt maturity increases the probability of financial crises. This paper contributes to the debate on whether IMF lending generates moral hazard in international financial markets in three respects. First, we examine for a sample of emerging and developing market economies whether after controlling for every thing else IMF lending leads to a shift in the composition of foreign debt towards riskier long-term debt. Second, we examine whether different IMF programs, other things the same, have different or similar impacts on the maturity composition of foreign debt. Third, we make an effort to account for the signaling and commitment effects of IMF lending. Using panel data for 71 emerging and developing countries for the period of 1992-97, we find that the impact of IMF programs is in general to reduce short-term debt flows relative to total debt flows, especially in the post Mexican crisis period. This suggests that IMF lending generates moral hazard in international financial markets from the perspective of the maturity composition of foreign debt. We also find that not all types of IMF lending generate moral hazard. Finally, we find that while there are significant signaling effects of IMF lending on the maturity of international debt, the
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Eaton, Jonathan & Fernandez, Raquel, 1995.
"Sovereign debt,"
Handbook of International Economics,
in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077
Elsevier.
[Downloadable!] (restricted)
Other versions:
Eaton, J. & Fernandez, R., 1995.
"Sovereign Debt,"
Papers
37, Boston University - Department of Economics.
Jonathan Eaton & Raquel Fernandez, 1995.
"Sovereign Debt,"
NBER Working Papers
5131, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Roberto Chang & Andres Velasco, 1998.
"The Asian Liquidity Crisis,"
NBER Working Papers
6796, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Velasco, A. & Chang, R., 1998.
"The Asian Liquidity Crisis,"
Working Papers
98-27, C.V. Starr Center for Applied Economics, New York University.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)