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IMF concern for reputation and conditional lending failure: Theory and empirics

  • Marchesi, Silvia
  • Sabani, Laura

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982-2001, we find that a longer relationship does increase IMF disbursements.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 84 (2007)
Issue (Month): 2 (November)
Pages: 640-666

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Handle: RePEc:eee:deveco:v:84:y:2007:i:2:p:640-666
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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