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On the Viability of Conditional Assistance Programs

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  • Mr. Wolfgang Mayer
  • Mr. Alex Mourmouras

Abstract

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.

Suggested Citation

  • Mr. Wolfgang Mayer & Mr. Alex Mourmouras, 2005. "On the Viability of Conditional Assistance Programs," IMF Working Papers 2005/121, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/121
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    References listed on IDEAS

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    8. 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.
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    Cited by:

    1. Suzi C. Kerr, 2013. "The Economics of International Policy Agreements to Reduce Emissions from Deforestation and Degradation," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 7(1), pages 47-66, January.
    2. Carsten Hefeker, 2006. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 241-252, May.
    3. Wolfgang Mayer & Alex Mourmouras, 2008. "IMF conditionality: An approach based on the theory of special interest politics," The Review of International Organizations, Springer, vol. 3(2), pages 105-121, June.
    4. Ostry, Jonathan D. & Jeanne, Olivier & Zettelmeyer, Jeromin, 2008. "A Theory of International Crisis Lending and IMF Conditionality," CEPR Discussion Papers 7022, C.E.P.R. Discussion Papers.
    5. Graham Bird & Wolfgang Mayer & Alex Mourmouras, 2005. "The Viability of Economic Reform Programs Supported by the International Financial Institutions," School of Economics Discussion Papers 0605, School of Economics, University of Surrey.
    6. Sherif Khalifa, 2010. "Conditionality covenants: Commitment versus discretion in sovereign credit contracts," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(4), pages 411-423.

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