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Sovereign debt workouts with the IMF as delegated monitor - a common agency approach

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  • Prasanna Gai
  • Nicholas Vause
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    Abstract

    IMF programmes are frequently criticised for lacking focus and being ineffective in helping maintain private credit lines following a debt crisis. A theoretical model is developed to explore the interlinkages between result-based conditionality and creditor collective action problems. The strategic interactions between official and private creditors are highlighted, and some of the trade-offs that underpin the design of IMF programmes are clarified. Conditions under which official creditors are able to limit the efficiency losses generated by creditor non-cooperation and debtor moral hazard are identified. The circumstances under which official lending is able to catalyse private sector finance are also analysed.

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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp187.pdf
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    Bibliographic Info

    Paper provided by Bank of England in its series Bank of England working papers with number 187.

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    Date of creation: May 2003
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    Handle: RePEc:boe:boeewp:187

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    1. Prasanna Gai & Simon Hayes & Hyun Song Shin, 2001. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25066, London School of Economics and Political Science, LSE Library.
    2. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    3. Marcel Fafchamps, . "Sovereign Debt, Structural Adjustment and Conditionality," Working Papers, Stanford University, Department of Economics 96015, Stanford University, Department of Economics.
    4. Mohsin S. Khan & Sunil Sharma, 2001. "IMF Conditionality and Country Ownership of Programs," IMF Working Papers 01/142, International Monetary Fund.
    5. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296 National Bureau of Economic Research, Inc.
    6. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3562, C.E.P.R. Discussion Papers.
    7. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284 National Bureau of Economic Research, Inc.
    8. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(454), pages C111-25, March.
    9. Michael Chui & Prasanna Gui & Andrew G Haldane, 2000. "Sovereign liquidity crises: analytics and implications for public policy," Bank of England working papers, Bank of England 121, Bank of England.
    10. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    11. Diwan, I. & Rodrik, D., 1992. "External Debt, Adjustment, and Burden Sharing: A Unified Framework," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 73, International Economics Section, Departement of Economics Princeton University,.
    12. Giulio Federico, 2001. "IMF Conditionality," Economics Papers 2001-W19, Economics Group, Nuffield College, University of Oxford, revised 01 Sep 2001.
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    Cited by:
    1. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, Springer, vol. 141(1), pages 233-267, October.
    2. Eichengreen, Barry & Kletzer, Kenneth & Mody, Ashoka, 2005. "The IMF in a World of Private Capital Markets," Santa Cruz Department of Economics, Working Paper Series qt84s7r0jf, Department of Economics, UC Santa Cruz.

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