Reputation, Debt, and Policy Conditionality
Federal Reserve Board; International Monetary Fund (IMF) - Research Department
IMF Working Paper No. 03/192
In principle, international financial institutions (IFIs) can use their leverage as creditors to prompt governments to undertake policy reform. Yet such lending has been frequently linked to unsustainable debt levels and little reform. This paper illustrates how the dual roles of IFIs as purveyors of credit and monitors of reform may help explain these negative outcomes. When debt levels rise, the IFIs reforms goals may become subordinated to its creditor's interest, compromising the enforcement of conditionality. Attracted by this prospect, malevolent governments strategically reform, enhancing their reputation in order to maintain lending and build their debt stock. Once debt levels are sufficiently large, such governments can stop policy reforms, assured that lending will continue.
Number of Pages in PDF File: 25
Keywords: Economic reform, IMF lending
JEL Classification: F33, F34, F35working papers series
Date posted: February 6, 2006
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.640 seconds