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IMF Concern for Reputation and Conditional Lending Failure: Theory and Empirics

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  • Silvia Marchesi

    (University of Siena and University of Florence)

  • Laura Sabani

    (University of Siena and University of Florence)

Abstract

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982-2001, we find that a longer relationship does increase IMF disbursements.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 206.

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Date of creation: 15 Jun 2005
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Handle: RePEc:csl:devewp:206

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Keywords: IMF programmes; conditionality; incomplete information; reputation; dynamic panel;

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