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On the Viability of Conditional Assistance Programs

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  • Wolfgang Mayer
  • Alex Mourmouras
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    Abstract

    Economic adjustment and reform programs, including those supported by international financial institutions (IFIs), must cope with informational asymmetries and special interest politics. This presents a particularly serious issue when IFIs make structural economic reforms a condition for providing economic assistance. This paper examines what conditions must be satisfied to make conditional assistance programs viable; that is, to ensure that the assistancereceiving government not only takes the assistance but also implements reforms, without compromising the country''s political stability and the IFI''s financial integrity. It is pointed out that tightly budgeted conditional assistance programs never bring about reforms, that the IFI''s cost of viable programs rises with the dependence of the government on domestic interest groups, and that unconditional assistance might be viable when conditional assistance is not.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/121.

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    Length: 29
    Date of creation: 01 Jun 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/121

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    Related research

    Keywords: IMF; Economic reforms; Conditionality; interest groups; economic policies; political stability; interest group; political economy; lack of incentive; political influence; provision of information; legal framework;

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    References

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    1. Dollar, David & Svensson, Jakob, 2000. "What Explains the Success or Failure of Structural Adjustment Programmes?," Economic Journal, Royal Economic Society, vol. 110(466), pages 894-917, October.
    2. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December.
    3. Bhagwati, Jagdish N., 1980. "Lobbying and welfare," Journal of Public Economics, Elsevier, vol. 14(3), pages 355-363, December.
    4. Miguel A. Savastano & Michael Mussa, 1999. "The IMF Approach to Economic Stabilization," IMF Working Papers 99/104, International Monetary Fund.
    5. Wolfgang Mayer & Alexandros Mourmouras, 2005. "The Political Economy of IMF Conditionality: A Common Agency Model," Review of Development Economics, Wiley Blackwell, vol. 9(4), pages 449-466, November.
    6. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
    7. Vines,David & Gilbert,Christopher L. (ed.), 2004. "The IMF and its Critics," Cambridge Books, Cambridge University Press, number 9780521821544, October.
    8. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
    9. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages C111-25, March.
    10. Allan Drazen, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 36-67.
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    Cited by:
    1. 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.
    2. Jeanne, Olivier & Ostry, Jonathan D & Zettelmeyer, Jeronimo, 2008. "A Theory of International Crisis Lending and IMF Conditionality," CEPR Discussion Papers 7022, C.E.P.R. Discussion Papers.
    3. 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.
    4. Sherif Khalifa, 2010. "Conditionality covenants: Commitment versus discretion in sovereign credit contracts," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 411-423.

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