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On the Viability of Conditional Assistance Programs

  • Wolfgang Mayer
  • Alex Mourmouras
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    Economic adjustment and reform programs, including those supported by international financial institutions (IFIs), must cope with informational asymmetries and special interest politics. This presents a particularly serious issue when IFIs make structural economic reforms a condition for providing economic assistance. This paper examines what conditions must be satisfied to make conditional assistance programs viable; that is, to ensure that the assistancereceiving government not only takes the assistance but also implements reforms, without compromising the country's political stability and the IFI's financial integrity. It is pointed out that tightly budgeted conditional assistance programs never bring about reforms, that the IFI's cost of viable programs rises with the dependence of the government on domestic interest groups, and that unconditional assistance might be viable when conditional assistance is not.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/121.

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    Length: 29
    Date of creation: 01 Jun 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/121
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    1. 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.
    2. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
    3. repec:cup:cbooks:9780521821544 is not listed on IDEAS
    4. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December.
    5. Wolfgang Mayer & Alexandros Mourmouras, 2005. "The Political Economy of IMF Conditionality: A Common Agency Model," Review of Development Economics, Wiley Blackwell, vol. 9(4), pages 449-466, November.
    6. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages C111-25, March.
    7. Dollar, David & Svensson, Jakob, 1998. "What explains the success or failure of structural adjustment programs?," Policy Research Working Paper Series 1938, The World Bank.
    8. repec:imf:imfwpa:99/104 is not listed on IDEAS
    9. Bhagwati, Jagdish N., 1980. "Lobbying and welfare," Journal of Public Economics, Elsevier, vol. 14(3), pages 355-363, December.
    10. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
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