Sovereign Debt Workouts with the IMF as Delegated Monitor - A Common Agency Approach

Bank of England Working Paper No. 187

34 Pages Posted: 23 Sep 2003  

Prasanna Gai

Bank of England

Nicholas Vause

Bank for International Settlements Staff

Date Written: 2003

Abstract

IMF programmes are frequently criticised for lacking focus and being ineffective in helping maintain private credit lines following a debt crisis. We develop a theoretical model to explore the interlinkages between result-based conditionality and creditor collective action problems. The model highlights the strategic interactions between official and private creditors, and clarifies some of the trade-offs that underpin the design of IMF programmes. We identify conditions under which official creditors are able to limit the efficiency losses generated by creditor non-cooperation and debtor moral hazard. The circumstances under which official lending is able to "catalyse" private sector finance are also analysed.

Keywords: Crisis management, IMF conditionality, private sector involvement, common agency probelms

JEL Classification: F33, F34

Suggested Citation

Gai, Prasanna and Vause, Nicholas, Sovereign Debt Workouts with the IMF as Delegated Monitor - A Common Agency Approach (2003). Bank of England Working Paper No. 187. Available at SSRN: https://ssrn.com/abstract=425792 or http://dx.doi.org/10.2139/ssrn.425792

Prasanna Gai

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom
+020 7601 3583 (Phone)

Nicholas Vause (Contact Author)

Bank for International Settlements Staff ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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