Catalysing Private Capital Flows: Do IMF Programmes Work as Commitment Devices?

Authors: Mody, Ashoka¹; Saravia, Diego²

Source: The Economic Journal, Volume 116, Number 513, July 2006 , pp. 843-867(25)

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Abstract:

In this article, we examine whether IMF programmes influence the ability of developing country issuers to tap international bond markets and if they improve spreads paid on the bonds issued. We find that Fund programmes do not provide a uniformly favourable signalling effect. Instead, the evidence is most consistent with a positive effect of IMF programmes when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the Fund's programme matters but the credibility of a joint commitment by the country and the IMF appears to be critical.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0297.2006.01114.x

Affiliations: 1: International Monetary Fund 2: Pontificia Universidad Católica de Chile

Publication date: 2006-07-01