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Catalyzing Private Capital Flows: Do IMF Programs Work as Commitment Devices?

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  • Ashoka Mody
  • Diego Saravia

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

An objective of IMF programs is to help countries improve their access to international capital markets. In this paper, we examine if Fund programs influence the ability of developing country issuers to tap international bond markets and whether they improve spreads paid on the bonds issued. We find that Fund programs do not provide a uniformly favorable signaling effect, i.e., the mere presence of the IMF does not act as a strong seal of good housekeeping. Instead, the evidence is most consistent with a positive effect of IMF programs when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the Fund’s program matters, but the credibility of a joint commitment by the country and the IMF appears to be critical.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 280.

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Date of creation: 2005
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Publication status: Published as "Catalyzing Capital Flows: Do IMF-Supported Programs Work as Commitment Devices?", The Economic Journal, Nº 116, pp. 1-26, julio 2006.
Handle: RePEc:ioe:doctra:280

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Related research

Keywords: Programs; signaling; capital market access;

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References

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  1. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
  2. Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
  3. Bennett Sutton & Luis Catão, 2002. "Sovereign Defaults," IMF Working Papers 02/149, International Monetary Fund.
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Citations

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Cited by:
  1. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2008. "Sudden Stops and IMF-Supported Programs," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 219-266 National Bureau of Economic Research, Inc.
  2. Miguel Fuentes & Diego Saravia, 2006. "Sovereign Defaulters: Do International Capital Markets Punish Them?," Documentos de Trabajo 314, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. Uma Ramakrishnan & Juan Zalduendo, 2006. "The Role of IMF Support in Crisis Prevention," IMF Working Papers 06/75, International Monetary Fund.
  4. Songying Fang & Erica Owen, 2011. "International institutions and credible commitment of non-democracies," The Review of International Organizations, Springer, vol. 6(2), pages 141-162, July.
  5. Gaston Gelos & Guido Sandleris & Ratna Sahay, 2004. "Sovereign Borrowing by Developing Countries," IMF Working Papers 04/221, International Monetary Fund.
  6. Evrensel, Ayse Y., 2004. "Lending to developing countries revisited: changing nature of lenders and payment problems," Economic Systems, Elsevier, vol. 28(3), pages 235-256, September.
  7. Molly Bauer & Cesi Cruz & Benjamin Graham, 2012. "Democracies only: When do IMF agreements serve as a seal of approval?," The Review of International Organizations, Springer, vol. 7(1), pages 33-58, March.
  8. Lee, Jong-Wha & Shin, Kwanho, 2008. "IMF bailouts and moral hazard," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 816-830, September.

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