The IMF and the mobilisation of foreign aid

Particularly in the context of the Millennium Development Goals, there has been much discussion of the association between the International Monetary Fund and bilateral aid flows. What role should the Fund be playing in helping to achieve the MDGs? Some observers have suggested that the Fund should seek to reduce its role in poor countries and should be minimising its own lending. They see aid donors taking on a larger role and present the IMF and aid donors as substitutes. Others envisage a much bigger lending role for the Fund. This may hint at complementarities. Although this discussion raises important policy issues there are very few studies that examine the relationship empirically. This paper attempts to help fill this gap. It explores the extent to which the IMF has had a catalytic effect on Official Development Assistance and the potential channels through which catalysis might work. It finds strong evidence of a positive association and suggests that this may have more to do with conditionality than with the provision of IMF resources. But it may not represent catalysis in the conventional sense. There is a synergy between the IMF and bilateral aid that may yet be more fully developed and exploited.