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IMF-Supported Programs: Stimulating Capital to Solvent Countries

Author

Listed:
  • Koen van der Veer
  • Eelke de Jong

Abstract

Sovereign default is the switching state between successful and unsuccessful Fund catalysis. We find the IMF to be effective in mobilising private capital flows to middle-income countries that participate in a Fund program, but do not restructure their debt. A debt restructuring is a clear signal of very weak economic fundamentals, deterring creditors from resuming lending, even when the IMF intervenes. As long as default is avoided, IMF programs help a country signal its willingness to reform and repay debts, thereby catalysing private capital. This signalling role appears to be more important for Fund catalysis, than the size of IMF lending.

Suggested Citation

  • Koen van der Veer & Eelke de Jong, 2010. "IMF-Supported Programs: Stimulating Capital to Solvent Countries," DNB Working Papers 244, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:244
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    File URL: https://www.dnb.nl/binaries/Working%20paper%20244_tcm46-231641.pdf
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    Cited by:

    1. Jorra, Markus, 2012. "The effect of IMF lending on the probability of sovereign debt crises," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 709-725.

    More about this item

    Keywords

    IMF; Sovereign default; Private capital flows; Catalytic effect;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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