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Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations

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  • Michael Hutchison
  • Ilan Noy

Abstract

We investigate the effects of IMF stabilization programs, and the reasons behind the unusually high IMF activity and relatively low program completion rates in Latin America. We base our tests on a panel, and distinguish between IMF program approvals and completion. We find that Latin America has higher output costs of IMF programs (especially when completed), no improvement in the current account, and a much higher likelihood of program failure and recidivism than other regions. The common finding that entering into an IMF-supported program incurs real short-run costs on the economy is entirely driven by the experiences in Latin America.

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  • Michael Hutchison & Ilan Noy, 2003. "Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations," Pacific Basin Working Paper Series 03-02, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfpb:03-02
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    Cited by:

    1. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2008. "Sudden Stops and IMF-Supported Programs," NBER Chapters,in: Financial Markets Volatility and Performance in Emerging Markets, pages 219-266 National Bureau of Economic Research, Inc.
    2. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
    3. Noy, Ilan, 2008. "Sovereign default risk, the IMF and creditor moral hazard," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(1), pages 64-78, February.
    4. Zungun Deniz & Ortanca Murat & Kirli Mustafa & Cura Serkan, 2013. "The End Of Imf - Turkey Relationship," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 183-192, July.
    5. Michael Binder & Marcel Bluhm, 2010. "On the Conditional Effects of IMF Program Participation on Output Growth," CESifo Working Paper Series 3161, CESifo Group Munich.
    6. Reynaud, Julien & Vauday, Julien, 2009. "Geopolitics and international organizations: An empirical study on IMF facilities," Journal of Development Economics, Elsevier, vol. 89(1), pages 139-162, May.
    7. Michael M. Hutchison, 2004. "Selection Bias and the Output Costs of IMF Programs," EPRU Working Paper Series 04-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    8. Dreher, Axel, 2006. "IMF and economic growth: The effects of programs, loans, and compliance with conditionality," World Development, Elsevier, vol. 34(5), pages 769-788, May.
    9. Yasemin Bal Gunduz, 2009. "Estimating Demand for IMF Financing by Low-Income Countries in Response to Shocks," IMF Working Papers 09/263, International Monetary Fund.
    10. Eugenio M Cerutti, 2007. "IMF Drawing Programs; Participation Determinants and Forecasting," IMF Working Papers 07/152, International Monetary Fund.
    11. ORASTEAN Ramona, 2014. "The Lending Arrangements Of The Imf In European Union In Times Of Crisis – Characteristics And Evolutions," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 9(1), pages 134-141, April.
    12. Alex Mandilaras & Graham Bird, 2008. "Foreign exchange pressures in Latin America: does debt matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(5), pages 613-627.
    13. Bataa, Erdenebat, 2012. "Macroeconomic risks of Mongolia and ways to mitigate them," MPRA Paper 72386, University Library of Munich, Germany, revised 25 Jun 2013.
    14. Binder, Michael & Bluhm, Marcel, 2017. "On the conditional effects of IMF program participation on output growth," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 192-214.
    15. Ali J Al-Sadiq, 2015. "The Impact of IMF-Supported Programs on FDI in Low-income Countries," IMF Working Papers 15/157, International Monetary Fund.
    16. Javed, Omer, 2014. "Institutional quality, macroeconomic stabilization and economic growth: a case study of IMF programme countries," MPRA Paper 56370, University Library of Munich, Germany.
    17. Sánchez, Elmer, 2013. "Grado de inversión y flujos de inversión directa extranjera a economías emergentes," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 61-79.

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    Keywords

    Economic development - Latin America ; International Monetary Fund ; Macroeconomics;

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