Certified or Branded? A Game-Theoretic Analysis of the IMF's Policy Support

While often considered a purely ?nancial institution, the IMF has throughout its history performed non-?nancial services for its member- ship. The latest such example is the Policy Support Instrument (PSI), a certi?cation mechanism established in 2005 for which only poor members are eligible. Based on a formal game-theoretic model, I argue that it is unlikely that the PSI will serve well its intended goal of facilitating capital market access for members requesting the service. Their low income, the lack of signi?cant consequences for markets, the IMF?s traditional reluctance to criticise members, as well as the need to promote the use of the new arrangement indicate that the Fund could emphasise participants? welfare over the interests of private lenders. The continued importance of foreign aid in eligible countries also puts the IMF in the role of gatekeeping such ?ows, which might con?ict with sending clear signals to commercial actors. All these reasons imply that in many cases its seal of approval will be of little use to third-parties, despite the high standards to which PSI-countries are supposed to adhere. The best argument in favour of the PSI being a useful addition to the Fund?s tool kit for low-income members is the fact that several countries have already signed a second one.