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IMF concern for reputation and conditional lending failure: theory and empirics

Author

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  • Silvia Marchesi

    (Department of Economics, University of Milan-Bicocca)

  • Laura Sabani

    (Dipartimento di Studi sullo Stato,Università di Firenze)

Abstract

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982-2001, we find that a longer relationship does increase IMF disbursements.

Suggested Citation

  • 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.
    • Handle: RePEc:mib:wpaper:114
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    References listed on IDEAS

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    More about this item

    Keywords

    IMF programmes; conditionality; incomplete information; reputation; dynamic panel;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • N2 - Economic History - - Financial Markets and Institutions

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