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IMF concern for reputation and conditional lending failure: theory and empirics

  • Silvia Marchesi

    ()

    (Department of Economics, University of Milan-Bicocca)

  • Laura Sabani

    (Dipartimento di Studi sullo Stato,Università di Firenze)

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982-2001, we find that a longer relationship does increase IMF disbursements.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper114.pdf
File Function: First version, 2007
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 114.

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Length: 35 pages
Date of creation: 2007
Date of revision: 2007
Handle: RePEc:mib:wpaper:114
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