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Global Contagion and IMF Credit Cycles: A Lender of Partial Resort?

Author

Listed:
  • Stephen Kaplan

    (George Washington University)

  • Sujeong Shim

    (University of Wisconsin-Madison)

Abstract

The International Monetary Fund (IMF) has an incomplete governance architecture characterized by insufficient resources to fulfill its global financial stability mandate. We argue this institutional incompleteness influences how the IMF balances tensions between systemic risks and moral hazard, and when it surprisingly exits lending relationships. During high global contagion periods, the IMF targets stabilizing systemic risks to fulfill its mandate, granting large loans and overlooking non-compliance with conditionality. However, when the IMF perceives minimal contagion risk, it focuses on moral hazard, extending smaller loans with stricter conditionality, and willingly cuts financial ties to preserve its reputation and resources for future crises. Employing a comparative case analysis of IMF decision-making for Argentina (1998-2001) and Greece (2010-2015), we find evidence supporting our theoretical priors from content analysis of IMF executive board meeting minutes, complementary archival evidence, and field research interviews. These findings have important implications for the IMF, institutionalism, and development.

Suggested Citation

  • Stephen Kaplan & Sujeong Shim, 2021. "Global Contagion and IMF Credit Cycles: A Lender of Partial Resort?," Working Papers 2021-13, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2021-13
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    More about this item

    Keywords

    IMF; lender of last resort; financial crises; international financial risk; contagion risk; Argentina; Greece;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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