Prolonged use of Fund resources has consistently expanded since the 1970s among both lowincome and middle-income countries. Overall this phenomenon suggests a lack of effectiveness of Fund supported programs. Such conditionality failure has been explained by the literature by looking both at the characteristics of the borrowing countries and at the lack of credibility of the IMF threat of interrupting financial assistance in case of non compliance with conditionality. In this paper we suggest that such lack of credibility might be attributed to the dual role played by the IMF, which acts at the same time as a creditor and as a monitor (or as an advisor) of economic reforms. We show that the Fund desire to hide its surveillance failures, in order to preserve its reputation of being a good monitor/advisor, may actually distort its lending decisions towards greater laxity in punishing non-compliance with economic reforms. Such laxity may be exacerbated by the length of the relationship between a country and the Fund. Thus we claim that prolonged use of IMF resources is not only a consequence of a lack of effectiveness of adjustment lending but it might itself be a determinant of conditionality failure.
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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number
202.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination F34 - International Economics - - International Finance - - - International Lending and Debt Problems N2 - Economic History - - Financial Markets and Institutions
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Axel Dreher & Silvia Marchesi & James Raymond Vreeland, 2007.
"The Politics of IMF Forecasts,"
Working Papers
124, University of Milano-Bicocca, Department of Economics, revised Oct 2007.
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