Vested Interests in a Positive Theory of Ifi Conditionality

29 Pages Posted: 15 Feb 2006

See all articles by Wolfgang Mayer

Wolfgang Mayer

University of Cincinnati - McMicken College of Arts and Sciences - Department of Economics

Alexandros Mourmouras

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

Date Written: April 2002

Abstract

Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.

Keywords: Conditionality ownership common agency political economy IMF

JEL Classification: E61 F33 F34

Suggested Citation

Mayer, Wolfgang and Mourmouras, Alexandros, Vested Interests in a Positive Theory of Ifi Conditionality (April 2002). IMF Working Paper, Vol. , pp. 1-29, 2002. Available at SSRN: https://ssrn.com/abstract=879581

Wolfgang Mayer (Contact Author)

University of Cincinnati - McMicken College of Arts and Sciences - Department of Economics ( email )

1202 Crosley
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Cincinnati, OH 45221-0371
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513-556-2600 (Phone)
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Alexandros Mourmouras

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

700 19th St. NW
Room 5-311
Washington, DC 20431
United States
202-623-5402 (Phone)
202-589-5402 (Fax)

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