Conditional Lending Under Altruism

25 Pages Posted: 15 Feb 2006

See all articles by Alexandros Mourmouras

Alexandros Mourmouras

International Monetary Fund (IMF) - Policy Development and Review Department

Date Written: June 2004

Abstract

We analyze how the altruism of an international financial institution (IFI) towards its low-income member countries (LICs) alters the effectiveness of its loans. We study IFI loans to a credit-constrained LIC. The IFI`s repayment policy is determined by the interplay of its concerns for the welfare of the loan recipient and its fiduciary responsibilities to creditor countries. If the IFI is unable to commit to repayment terms in advance, conditional loans are superior to unconditional loans. Thus, IFI altruism and the inability to commit are sufficient reasons to equip loans with conditions. Conditional loans produce an efficient allocation of resources, so altruism is not a fundamental reason that loans fail to increase welfare.

Keywords: IMF, conditionality, altruism, time consistency, Samaritan`s dilemma

JEL Classification: E61, F33, F34

Suggested Citation

Mourmouras, Alexandros, Conditional Lending Under Altruism (June 2004). IMF Working Paper No. 04/100, Available at SSRN: https://ssrn.com/abstract=878924

Alexandros Mourmouras (Contact Author)

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

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