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International bailouts, moral hazard and conditionality

  • Olivier Jeanne
  • Jeromin Zettelmeyer

The large international bailouts of the 1990s have been criticized for generating moral hazard at the expense of the global taxpayer. We argue that this criticism is misleading because international bailouts create no, or very few, costs to the international community. Instead, the problem is to ensure that bailouts are not used to facilitate bad domestic policies, thus creating moral hazard at the expense of domestic taxpayers. This may require a shift towards ex ante conditionality, in the sense that the availability and size of official crisis lending need to be conditional on government policies before the crisis. Copyright CEPR, CES, MSH, 2001.

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Article provided by CEPR & CES & MSH in its journal Economic Policy.

Volume (Year): 16 (2001)
Issue (Month): 33 (October)
Pages: 407-432

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Handle: RePEc:bla:ecpoli:v:16:y:2001:i:33:p:407-432
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  1. Lynn Aylward & Rupert Thorne, 1998. "An Econometric Analysis of Countries' Repayment Performance to the International Monetary Fund," IMF Working Papers 98/32, International Monetary Fund.
  2. Shang-Jin Wei, 2000. "Local Corruption and Global Capital Flows," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 303-354.
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  7. Michael Mussa, 1999. "Reforming the International Financial Architecture: Limiting Moral Hazard and Containing Real Hazard," RBA Annual Conference Volume, in: David Gruen & Luke Gower (ed.), Capital Flows and the International Financial System Reserve Bank of Australia.
  8. Van Rijckeghem, Caroline & Weder, Beatrice, 1999. "Financial contagion: Spillovers through banking centers," CFS Working Paper Series 1999/17, Center for Financial Studies (CFS).
  9. Romer, T. & Weingast, B.R., 1990. "Political Foundations Of The Thrift Debacle," GSIA Working Papers 1990-14, Carnegie Mellon University, Tepper School of Business.
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