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Conditionality and Ownership in IMF Lending: A Political Economy Approach

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Author Info
Drazen, Allan

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Abstract

The relation between IMF conditionality and country ownership of assistance programs is considered from a political economy perspective, focusing on the question of why conditionality is needed if it is in a country’s best interests to undertake the reform program. It is argued that heterogeneity of interests must form the basis of any discussion of conditionality and ownership. The Paper stresses a conflict between a reformist government and domestic interest groups that oppose reform, leading to a distinction between government and country ownership of a program. A model of lending and policy reform is presented that illustrates the effects of unconditional and conditional assistance first without and then with political constraints. It is shown that conditionality can play a key role even when the Fund and authorities agree on the goals of an assistance program.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3562.

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Date of creation: Sep 2002
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Handle: RePEc:cpr:ceprdp:3562

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Related research
Keywords: conditionality; foreign aid; IMF; ownership;

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Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F35 - International Economics - - International Finance - - - Foreign Aid

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dhonte, Pierre, 1997. "Conditionality as an Instrument of Borrower Credibility," IMF Papers on Policy Analysis and Assessments 97/2, International Monetary Fund. [Downloadable!]
  2. Giulio Federico, 2001. "IMF Conditionality," Economics Papers 2001-W19, Economics Group, Nuffield College, University of Oxford, revised 01 Sep 2001. [Downloadable!]
  3. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February. [Downloadable!] (restricted)
  4. Nadeem Ul Haque & Mohsin S. Khan, 1998. "Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence," IMF Working Papers 98/169, International Monetary Fund.
  5. Mohsin S. Khan & Sunil Sharma, 2001. "IMF Conditionality and Country Ownership of Programs," IMF Working Papers 01/142, International Monetary Fund.
  6. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
    Other versions:
  8. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296 National Bureau of Economic Research, Inc. [Downloadable!]
  9. Thomas D. Willett, 2000. "A Soft-Core Public Choice Analysis of the International Monetary Fund," Claremont Colleges Working Papers 2000-56, Claremont Colleges. [Downloadable!]
  10. Jeanne, Olivier & Zettelmeyer, Jeromin, 2001. "International Bailouts, Moral Hazard, and Conditionality," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  11. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  12. Diwan, I. & Rodrik, D., 1992. "External Debt, Adjustment, and Burden Sharing: A Unified Framework," Princeton Studies in International Economics 73, International Economics Section, Departement of Economics Princeton University,.
  13. Wolfgang Mayer & Alex Mourmouras, 2002. "Vested Interests in a Positive Theory of IFI Conditionality," IMF Working Papers 02/73, International Monetary Fund.
  14. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn. [Downloadable!] (restricted)
  15. Pierre Dhonte, 1997. "Conditionality as an Instrument of Borrower Credibility," IMF Policy Discussion Papers 97/2, International Monetary Fund.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Wolfgang Mayer & Alex Mourmouras, 2005. "On the Viability of Conditional Assistance Programs," IMF Working Papers 05/121, International Monetary Fund. [Downloadable!]
  2. Juan Ricardo Perilla Jiménez, 2008. "La política económica de las crisis financieras: una aproximación empírica," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 10(18), pages 179-211, January-J. [Downloadable!]
  3. Allan Drazen & Nuno Limão, 2004. "Government Gains from Self-Restraint: A Bargaining Theory of Inefficient Redistribution," NBER Working Papers 10375, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Silvia Marchesi & Laura Sabani, 2007. "IMF concern for reputation and conditional lending failure: theory and empirics," Working Papers 114, University of Milano-Bicocca, Department of Economics, revised 2007. [Downloadable!]
    Other versions:
  5. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October. [Downloadable!] (restricted)
    Other versions:
  6. Wolfgang Mayer & Anna Ivanova & George C. Anayotos & Alex Mourmouras, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 03/8, International Monetary Fund. [Downloadable!]
  7. Peter Rangazas & Alex Mourmouras, 2004. "Conditional Lending Under Altruism," IMF Working Papers 04/100, International Monetary Fund. [Downloadable!]
  8. Rodney Ramcharan, 2004. "Debt Hold Up and International Lending," Econometric Society 2004 North American Summer Meetings 341, Econometric Society. [Downloadable!]
  9. Uma Ramakrishnan & Alun H. Thomas, 2006. "The Incidence and Effectiveness of Prior Actions in IMF-Supported Programs," IMF Working Papers 06/213, International Monetary Fund. [Downloadable!]
  10. Rodney Ramcharan, 2002. "How Does Conditional Aid (Not) Work?," IMF Working Papers 02/183, International Monetary Fund. [Downloadable!]
  11. Drazen, Allan & Limão, Nuno, 2003. "Government Gains from Self-Restraint: A Bargaining Theory of Inefficient Redistribution Policies," CEPR Discussion Papers 4007, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Silvia Marchesi & Laura Sabani, 2005. "Prolonged Use and Conditionality Failure: Investigating the IMF Responsibility," Development Working Papers 202, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
  13. Anna Ivanova, 2006. "Outcomes-Based Conditionality: Its Role and Optimal Design," IMF Staff Papers, Palgrave Macmillan Journals, vol. 53(si), pages 4. [Downloadable!] (restricted)
  14. Wolfgang Mayer, 2004. "The Political Economy of Unconditional and Conditional Foreign Assistance: Grants vs. Loan Rollovers," University of Cincinnati, Economics Working Papers Series 2004-02, University of Cincinnati, Department of Economics. [Downloadable!]
  15. Prasanna Gai & Nicholas Vause, . "Sovereign debt workouts with the IMF as delegated monitor - a common agency approach," Bank of England working papers 187, Bank of England. [Downloadable!]
  16. Hefeker, Carsten & Michaelowa, Katharina, 2003. "Can Process Conditionality Enhance Aid Effectiveness? The Role of Bureaucratic Interest and Public Pressure," Discussion Paper Series 26389, Hamburg Institute of International Economics. [Downloadable!]
  17. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  18. James M. Boughton & Alex Mourmouras, 2002. "Is Policy Ownership An Operational Concept?," IMF Working Papers 02/72, International Monetary Fund. [Downloadable!]
  19. Rodney Ramcharan, 2004. "Debt “Hold Up†and International Lending," Econometric Society 2004 Far Eastern Meetings 462, Econometric Society. [Downloadable!]
  20. Rodney Ramcharan, 2003. "Reputation, Debt, and Policy Conditionality," IMF Working Papers 03/192, International Monetary Fund. [Downloadable!]
  21. Anna Ivanova, 2006. "Outcomes-Based Conditionality: Its Role and Optimal Design," IMF Working Papers 06/128, International Monetary Fund. [Downloadable!]
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