Reputation, Debt, and Policy Conditionality

25 Pages Posted: 6 Feb 2006

See all articles by Rodney Ramcharan

Rodney Ramcharan

University of Southern California, Marshall School of Business

Date Written: September 2003

Abstract

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.

Keywords: Economic reform, IMF lending

JEL Classification: F33, F34, F35

Suggested Citation

Ramcharan, Rodney, Reputation, Debt, and Policy Conditionality (September 2003). IMF Working Paper, Vol. , pp. 1-25, 2003. Available at SSRN: https://ssrn.com/abstract=880304

Rodney Ramcharan (Contact Author)

University of Southern California, Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

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