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Conditional Lending Under Altruism

  • Alex Mourmouras
  • Peter Rangazas

We analyze how the altruism of an international financial institution (IFI) towards its lowincome member countries (LICs) alters the effectiveness of its loans. We study IFI loans to a credit-constrained LIC. The IFI''s repayment policy is determined by the interplay of its concerns for the welfare of the loan recipient and its fiduciary responsibilities to creditor countries. If the IFI is unable to commit to repayment terms in advance, conditional loans are superior to unconditional loans. Thus, IFI altruism and the inability to commit are sufficient reasons to equip loans with conditions. Conditional loans produce an efficient allocation of resources, so altruism is not a fundamental reason that loans fail to increase welfare.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/100.

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Length: 24
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/100
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  1. Tito Cordella & Giovanni Dell'Aricca, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 68-86.
  2. Alex Mourmouras & Wolfgang Mayer, 2002. "Vested Interests in a Positive Theory of IFI Conditionality," IMF Working Papers 02/73, International Monetary Fund.
  3. Svensson, Jakob, 1997. "When is foreign aid policy credible : aid dependence and conditionality," Policy Research Working Paper Series 1740, The World Bank.
  4. Allan Drazen, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 36-67.
  5. Bruce, Neil & Waldman, Michael, 1991. "Transfers in Kind: Why They Can Be Efficient and Nonpaternalistic," American Economic Review, American Economic Association, vol. 81(5), pages 1345-51, December.
  6. Michael Mussa, 2002. "Argentina and the Fund: From Triumph to Tragedy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa67, December.
  7. Lindbeck, Assar & Weibull, Jorgen W, 1988. "Altruism and Time Consistency: The Economics of Fait Accompli," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1165-82, December.
  8. Dollar, David & Svensson, Jakob, 1998. "What explains the success or failure of structural adjustment programs?," Policy Research Working Paper Series 1938, The World Bank.
  9. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
  10. Alex Mourmouras & Anna Ivanova & George C. Anayotos & Wolfgang Mayer, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 03/8, International Monetary Fund.
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