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International Lending And The Samaritan'S Dilemma

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Listed:
  • ALEXANDROS MOURMOURAS

    (Asia and Pacific Department, International Monetary Fund, Washington, DC, USA)

  • PETER RANGAZAS

    (IUPUI, CA 518, Department of Economics, IUPUI 46202, USA)

Abstract

We analyze how the altruism of an International Financial Institution (IFI) towards its Low-Income member Countries (LICs) alters the effectiveness of its loans. We study IFI loans to a credit-constrained LIC. The IFI's repayment policy is determined by the interplay of its concerns for the welfare of the loan recipient and its fiduciary responsibilities to creditor countries. If the IFI is unable to commit to either the size of future loans or the repayment terms on past loans, conditional loans are superior to unconditional loans. Thus, IFI altruism and the inability to commit are sufficient reasons to equip loans with conditions. Conditional loans produce an efficient allocation of resources, so altruism is not a fundamental reason that loans fail to increase welfare.

Suggested Citation

  • Alexandros Mourmouras & Peter Rangazas, 2015. "International Lending And The Samaritan'S Dilemma," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-22.
    • Handle: RePEc:wsi:serxxx:v:60:y:2015:i:01:n:s0217590815500022
    DOI: 10.1142/S0217590815500022
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    References listed on IDEAS

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    1. Allan Drazen, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 36-67.
    2. Tito Cordella & Giovanni Dell'Aricca, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 68-86.
    3. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
    4. Alex Mourmouras & Peter Rangazas, 2009. "Foreign Aid with Voracious Politics," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 787-810, November.
    5. Mr. Alex Mourmouras & Anna Ivanova & Mr. George C Anayiotos & Mr. Wolfgang Mayer, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 2003/008, International Monetary Fund.
    6. Michael Mussa, 2002. "Argentina and the Fund: From Triumph to Tragedy," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa67, February.
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