International Bailouts, Moral Hazard, and Conditionality
29 Pages Posted: 9 Oct 2001
Date Written: September 2001
The large international bailouts of the 1990s have been criticized for different reasons, in particular for generating moral hazard at the expense of the global taxpayer. We argue in this paper that some of these concerns are exaggerated or misleading because international bailouts have no or very little cost to the international community and the global taxpayer. The problem, in our view, is rather to ensure that the international safety net is not used as an input into bad domestic policies. This may require a shift towards ex ante conditionality, in the sense that the availability and size of official crisis lending need to be conditional on government policies before the crisis.
JEL Classification: F32, F33
Suggested Citation: Suggested Citation