IMF Lending, Maturity of International Debt and Moral Hazard
International Monetary Fund lending continues to be criticized for possibly generating moral hazard in international financial markets. The empirical examination of this issue has focused exclusively on the potential distortions in the pricing of credit, in the form of lower spreads. To date no research has been conducted on the potential impact of IMF lending on the maturity composition of borrowing. This is a major omission because of the established relationship in the financial crises literature that shorter debt maturity increases the probability of financial crises. This paper contributes to the debate on whether IMF lending generates moral hazard in international financial markets in three respects. First, we examine for a sample of emerging and developing market economies whether after controlling for every thing else IMF lending leads to a shift in the composition of foreign debt towards riskier long-term debt. Second, we examine whether different IMF programs, other things the same, have different or similar impacts on the maturity composition of foreign debt. Third, we make an effort to account for the signaling and commitment effects of IMF lending. Using panel data for 71 emerging and developing countries for the period of 1992-97, we find that the impact of IMF programs is in general to reduce short-term debt flows relative to total debt flows, especially in the post Mexican crisis period. This suggests that IMF lending generates moral hazard in international financial markets from the perspective of the maturity composition of foreign debt. We also find that not all types of IMF lending generate moral hazard. Finally, we find that while there are significant signaling effects of IMF lending on the maturity of international debt, the
|Date of creation:||01 Dec 2002|
|Date of revision:|
|Contact details of provider:|| Phone: 404-413-0235|
Web page: http://aysps.gsu.edu/isp/index.html
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Graham Bird & Dane Rowlands, 1997. "The Catalytic Effect of Lending by the International Financial Institutions," The World Economy, Wiley Blackwell, vol. 20(7), pages 967-991, November.
- Walter B. Wriston, 1998. "Dumb Networks and Smart Capital," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), Winter.
- Joyce, Joseph P., 1992. "The economic characteristics of IMF program countries," Economics Letters, Elsevier, vol. 38(2), pages 237-242, February.
- Steven Phillips & Timothy D. Lane, 2000. "Does IMF Financing Result in Moral Hazard?," IMF Working Papers 00/168, International Monetary Fund.
- Roberto Chang & Andres Velasco, 1999.
"Liquidity Crises in Emerging Markets: Theory and Policy,"
NBER Working Papers
7272, National Bureau of Economic Research, Inc.
- Roberto Chang & Andrés Velasco, 2000. "Liquidity Crises in Emerging Markets: Theory and Policy," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 11-78 National Bureau of Economic Research, Inc.
- Chang, R. & Velasco, A., 1999. "Liquidity Crises in Emerging Markets: Theory and Policy," Working Papers 99-14, C.V. Starr Center for Applied Economics, New York University.
- Roberto Chang & Andres Velasco, 1999. "Liquidity crises in emerging markets: Theory and policy," Working Paper 99-15, Federal Reserve Bank of Atlanta.
- Roberto Chang & Andrés Velasco, 1999. "Liquidity Crises in Emerging Markets: Theory and Policy," Documentos de Trabajo 59, Centro de Economía Aplicada, Universidad de Chile.
- Giovanni Dell'Ariccia & Jeromin Zettelmeyer & Isabel Schnabel, 2002. "Moral Hazard and International Crisis Lending: A Test," IMF Working Papers 02/181, International Monetary Fund.
- Graham Bird, 1994. "The Myths and Realities of IMF Lending," The World Economy, Wiley Blackwell, vol. 17(5), pages 759-778, 09.
- Rodrik, Dani, 1995.
"Why is there Multilateral Lending?,"
CEPR Discussion Papers
1207, C.E.P.R. Discussion Papers.
- Jonathan Eaton & Raquel Fernandez, 1995.
Boston University - Institute for Economic Development
59, Boston University, Institute for Economic Development.
- Jeffrey M. Wooldridge, 2001.
"Econometric Analysis of Cross Section and Panel Data,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262232197, June.
- Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, June.
- Ilan Goldfajn & Rodrigo O. ValdÃ©s, 1997. "Capital Flows and the Twin Crises : The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
- Jeremy Bulow & Kenneth Rogoff, 1988. "Multilateral Negotiations for Rescheduling Developing Country Debt: A Bargaining-Theoretic Framework," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 644-657, December.
- Hajivassiliou, Vassilis A., 1987. "The external debt repayments problems of LDC's : An econometric model based on panel data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 205-230.
- repec:cup:cbooks:9780521522717 is not listed on IDEAS
- Christian B. Mulder & Matthieu BussiÃ¨re, 1999. "External Vulnerability in Emerging Market Economies: How High Liquidity Can offset Weak Fundamentals and the Effects of Contagion," IMF Working Papers 99/88, International Monetary Fund.
- Eichengreen, Barry & Mody, Ashoka, 1999.
"Lending booms, reserves, and the sustainability of short-term debt - inferences from the pricing of syndicated bank loans,"
Policy Research Working Paper Series
2155, The World Bank.
- Eichengreen, Barry & Mody, Ashoka, 2000. "Lending booms, reserves and the sustainability of short-term debt: inferences from the pricing of syndicated bank loans," Journal of Development Economics, Elsevier, vol. 63(1), pages 5-44, October.
- Barry Eichengreen & Ashoka Mody, 1999. "Lending Booms, Reserves, and the Sustainability of Short-Term Debt: Inferences from the Pricing of Syndicated Bank Loans," NBER Working Papers 7113, National Bureau of Economic Research, Inc.
- Roberto Chang & Andres Velasco, 1998.
"The Asian liquidity crisis,"
98-11, Federal Reserve Bank of Atlanta.
- Harold L. Cole & Patrick J. Kehoe, 1997. "Reviving reputation models of international debt," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 21-30.
- Charles W. Calomiris, 1998. "The IMF's Imprudent Role As Lender of Last Resort," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), pages 275-294, Winter.
- Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
- Rowlands, Dane, 2001. "The Response of Other Lenders to the IMF," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 531-46, August.
- Guillermo A. Calvo & Enrique G. Mendoza, 1996.
"Mexico's balance-of-payments crisis: a chronicle of death foretold,"
International Finance Discussion Papers
545, Board of Governors of the Federal Reserve System (U.S.).
- Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
- Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
- Jason Furman & Joseph E. Stiglitz, 1998. "Economic Crises: Evidence and Insights from East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 1-136.
- Dani Rodrik & Andres Velasco, 1999. "Short-Term Capital Flows," NBER Working Papers 7364, National Bureau of Economic Research, Inc.
- Ozler, Sule, 1993. "Have Commercial Banks Ignored History?," American Economic Review, American Economic Association, vol. 83(3), pages 608-20, June.
- Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
- Bird, Graham & Orme, Timothy, 1981. "An analysis of drawings on the international monetary fund by developing countries," World Development, Elsevier, vol. 9(6), pages 563-568, June.
- Faini, Riccardo & De Melo, Jaime & Senhadji-Semlali, Abdel & Stanton, Julie, 1989. "Macro performance under adjustment lending," Policy Research Working Paper Series 190, The World Bank.
- Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
- Morris Goldstein, 2003. "An Evaluation of Proposals to Reform the International Financial Architecture," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 225-272 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:ays:ispwps:paper0301. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paul Benson)
If references are entirely missing, you can add them using this form.