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Catalyzing Capital Flows: Do IMF-Supported Programs Work As Commitment Devices?

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  • Mr. Ashoka Mody
  • Mr. Diego Saravia

Abstract

An objective of IMF-supported programs is to help countries improve their access to international capital markets. In this paper, we examine the issue whether IMF-supported programs influence the ability of developing country issuers to tap international bond markets and whether they improve spreads paid on the bonds issued. We find that IMF-supported programs do not provide a uniformly favorable signaling effect-that is, the mere existence of a program supported by the IMF does not act as a strong "seal of good housekeeping." Instead, the evidence is most consistent with a positive effect of IMF-supported programs when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the IMF-supported program matters, but the credibility of a joint commitment by the country and the IMF appears to be critical.

Suggested Citation

  • Mr. Ashoka Mody & Mr. Diego Saravia, 2003. "Catalyzing Capital Flows: Do IMF-Supported Programs Work As Commitment Devices?," IMF Working Papers 2003/100, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2003/100
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    References listed on IDEAS

    as
    1. Mr. George C. Anayotos & Mr. Alex Mourmouras & Mr. Wolfgang Mayer & Anna Ivanova, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 2003/008, International Monetary Fund.
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