Geopolitical Alignment and the Catalytic Effects of International Financial Institution Lending

International organization loans are often expected to reassure investors, yet market responses to projects and loans vary sharply across recipient countries. We argue that loan approvals function as noisy signals of policy credibility, and that geopolitical alignment with major powers shapes how financial markets interpret these signals--through channels whose sign depends jointly on the institutional basis of the lender's credibility and on which power the recipient is aligned with. Using a monthly dataset covering more than 100 countries, we examine how loan approvals by the Asian Development Bank (ADB) and the International Monetary Fund (IMF) affect financial conditions in non-permanent members of the UN Security Council. We find weaker, only marginally robust evidence that alignment with the US is associated with more favorable currency reactions to IMF lending, tentatively consistent with a shareholder-credibility channel; alignment with Russia is associated with less favorable currency reactions, consistent with a leniency channel, although this result is also only marginally robust to cluster-robust inference. We do not find a comparable effect for alignment with China. For the ADB, whose credibility rests less on conditionality than on continuity of financing, alignment with China or Russia is instead associated with more favorable currency reactions, consistent with a backstop channel. Stock prices and Treasury bill yields display markedly weaker and less consistent conditioning effects.