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IMF-Supported Programs: Stimulating Capital to Solvent Countries

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  • Koen van der Veer
  • Eelke de Jong

Abstract

Sovereign default is the switching state between successful and unsuccessful Fund catalysis. We find the IMF to be effective in mobilising private capital flows to middle-income countries that participate in a Fund program, but do not restructure their debt. A debt restructuring is a clear signal of very weak economic fundamentals, deterring creditors from resuming lending, even when the IMF intervenes. As long as default is avoided, IMF programs help a country signal its willingness to reform and repay debts, thereby catalysing private capital. This signalling role appears to be more important for Fund catalysis, than the size of IMF lending.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 244.

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Date of creation: Mar 2010
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Handle: RePEc:dnb:dnbwpp:244

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Keywords: IMF; Sovereign default; Private capital flows; Catalytic effect;

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Cited by:
  1. Markus Jorra, 2010. "The Effect of IMF Lending on the Probability of Sovereign Debt Crises," MAGKS Papers on Economics 201026, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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