In this paper, I revisit the moral hazard arguments in order to discuss alternative approaches to the role of the IFIs. In particular, I distinguish between lender, borrower and government moral hazard, according to how the costs and benefits of IFI intervention are distributed among the relevant players, and argue that it is the latter problem that should be at the center of the debate. In this light, I analyze the consequences of alternative modus operandi of the IFIs. I conclude that both casual evidence and economic analysis suggest that an explicit international safety net, by enhancing the expected returns of good policies as perceived by the government, may create the right incentives outweighing hazard considerations and, as a result, may help reduce the incidence of recurrent debt problems.
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Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003.
"Debt intolerance,"
MPRA Paper
13932, University Library of Munich, Germany.
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Other versions:
Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Debt Intolerance,"
NBER Working Papers
9908, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Debt Intolerance,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 34(2003-1), pages 1-74.
[Downloadable!]