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The IMF in a World of Private Capital Markets

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  • Ashoka Mody
  • Barry J. Eichengreen
  • Kenneth Kletzer

Abstract

The IMF attempts to catalyze and stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/84.

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Length: 34
Date of creation: 01 Apr 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/84

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Keywords: Access to capital markets; Bonds; bond; equation; probability; bond markets; bondholders; bond issuance; dummy variables; discrete change; bond issues; liquidity crises; statistics; bond market; bond spreads; sample selection; standard deviation; bond market access; market bond; international bond; bond index; equations; international finance; present value; international capital; financial intermediation; emerging market bond; probabilities; dummy variable; standard errors; international financial architecture; currency of denomination; sovereign bond; bond restructuring; financial statistics; international financial markets; bond issue; financial markets; financial market; financial resources; individual bondholders; random error; international bank lending; bond issuances; econometrics; statistical significance; financial contracts; bond maturity; international financial statistics; bond issuers; international financial system; currency crises; global bond markets; financial system; global bond; outliers; missing data; financial services; outstanding bonds;

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References

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Citations

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Cited by:
  1. Barry J. Eichengreen & Poonam Gupta & Ashoka Mody, 2006. "Sudden Stops and IMF-Supported Programs," IMF Working Papers 06/101, International Monetary Fund.
  2. Uma Ramakrishnan & Juan Zalduendo, 2006. "The Role of IMF Support in Crisis Prevention," IMF Working Papers 06/75, International Monetary Fund.
  3. Aitor Erce, 2012. "Does the IMF's official support affect sovereign bonds maturities?," Globalization and Monetary Policy Institute Working Paper 128, Federal Reserve Bank of Dallas.
  4. Aitor Erce, 2012. "Does the IMF´s official support affect sovereign bond maturities?," Banco de Espa�a Working Papers 1231, Banco de Espa�a.
  5. Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
  6. World Bank, 2007. "Global Development Finance 2007 : The Globalization of Corporate Finance in Developing Countries, Volume 1. Review, Analysis, and Outlook," World Bank Publications, The World Bank, number 8126, October.
  7. Jorra, Markus, 2012. "The effect of IMF lending on the probability of sovereign debt crises," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 709-725.
  8. Evrensel, Ayse & Kutan, Ali M., 2008. "How do IMF announcements affect financial markets in crises?: Evidence from forward exchange markets," Journal of Financial Stability, Elsevier, vol. 4(2), pages 121-134, June.
  9. Hallak, Issam, 2009. "Renegotiation and the pricing structure of sovereign bank loans: Empirical evidence," Journal of Financial Stability, Elsevier, vol. 5(1), pages 89-103, January.
  10. Zwart, Sanne, 2007. "The mixed blessing of IMF intervention: Signalling versus liquidity support," Journal of Financial Stability, Elsevier, vol. 3(2), pages 149-174, July.
  11. Galina Hale, 2003. "Bonds or Loans? The Effect of Macroeconomic Fundamentals," Cowles Foundation Discussion Papers 1403, Cowles Foundation for Research in Economics, Yale University, revised Sep 2005.
  12. John Cady & Anthony J. Pellechio, 2006. "Sovereign Borrowing Cost and the IMF's Data Standards Initiatives," IMF Working Papers 06/78, International Monetary Fund.
  13. Evrensel, Ayse Y. & Kutan, Ali M., 2008. "Impact of IMF-related news on capital markets: Further evidence from bond spreads in Indonesia and Korea," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 147-160, April.
  14. Hefeker, Carsten, 2006. "Vermeidung und Bewältigung von Verschuldungskrisen: Die Rolle privater und öffentlicher Institutionen," HWWA Discussion Papers 340, Hamburg Institute of International Economics (HWWA).
  15. Kutan, Ali M. & Muradoglu, Gulnur & Sudjana, Brasukra G., 2012. "IMF programs, financial and real sector performance, and the Asian crisis," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 164-182.
  16. Carlos de Resende, 2007. "IMF-Supported Adjustment Programs: Welfare Implications and the Catalytic Effect," Working Papers 07-22, Bank of Canada.

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