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Vested Interests in a Positive Theory of IFI Conditionality

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  • Alex Mourmouras
  • Wolfgang Mayer
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    Abstract

    Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/73.

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    Length: 28
    Date of creation: 01 Apr 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/73

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    Related research

    Keywords: Conditionality; IMF; interest group; economic assistance; economic policies; political economy; interest groups; political science; political environment; political institutions; political influence; political objectives; public interest; pressure groups;

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    Cited by:
    1. Hefeker, Carsten, 2005. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Proceedings of the German Development Economics Conference, Kiel 2005 19, Verein für Socialpolitik, Research Committee Development Economics.
    2. Giovanni Dell'Ariccia & Tito Cordella, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Working Papers 02/115, International Monetary Fund.
    3. Marchesi, Silvia & Sabani, Laura & Dreher, Axel, 2009. "Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence," IZA Discussion Papers 4041, Institute for the Study of Labor (IZA).
    4. James M. Boughton & Alex Mourmouras, 2002. "Is Policy Ownership An Operational Concept?," IMF Working Papers 02/72, International Monetary Fund.
    5. Wolfgang Mayer & Alex Mourmouras, 2004. "The Political Economy of Conditional and Unconditional Foreign Assistance," IMF Working Papers 04/38, International Monetary Fund.
    6. Graham Bird & Wolfgang Mayer & Alex Mourmouras, 2005. "The Viability of Economic Reform Programs Supported by the International Financial Institutions," School of Economics Discussion Papers 0605, School of Economics, University of Surrey.
    7. Jeromin Zettelmeyer & Jonathan David Ostry & Olivier Jeanne, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 08/236, International Monetary Fund.
    8. Alex Mourmouras & Peter Rangazas, 2004. "Conditional Lending Under Altruism," IMF Working Papers 04/100, International Monetary Fund.
    9. Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009. "The dynamic implications of foreign aid and its variability," Journal of Development Economics, Elsevier, vol. 88(1), pages 87-102, January.
    10. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
    11. Weithoner, Thomas, 2006. "How can IMF policy eliminate country moral hazard and account for externalities?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1257-1276, December.
    12. Auty, Richard M., 2006. "Patterns of Rent-Extraction and Deployment in Developing Countries: Implications for Governance, Economic Policy and Performance," Working Paper Series RP2006/16, World Institute for Development Economic Research (UNU-WIDER).
    13. Carsten Hefeker & Katharina Michaelowa, 2005. "Can process conditionality enhance aid effectiveness?," Public Choice, Springer, vol. 122(1), pages 159-175, January.
    14. Wolfgang Mayer & Alex Mourmouras, 2008. "IMF conditionality: An approach based on the theory of special interest politics," The Review of International Organizations, Springer, vol. 3(2), pages 105-121, June.
    15. Alex Mourmouras & Anna Ivanova & George C. Anayotos & Wolfgang Mayer, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 03/8, International Monetary Fund.

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